San Francisco: A high-stakes trial focusing on Elon Musk’s brief attempt to back out of buying Twitter Inc. in 2022 began on Monday in federal court, with investors alleging that the billionaire manipulated the company’s stock price to secure a better deal.
Musk eventually completed the $44 billion (approximately ₹3.65 lakh crore at current exchange rates) acquisition later that year, closing the buyout at the originally agreed price of $54.20 per share. However, during the six-month period between signing and finalising the agreement, a group of investors claims Musk publicly undermined the company in an attempt to drive down its market value for personal gain.
The case, titled Pampena v. Musk, is being heard in the US District Court for the Northern District of California in San Francisco. Senior US District Judge Charles Breyer is presiding over the proceedings.
Investors allege stock manipulation
In opening statements, Mark Molumphy, a lawyer representing the investors, told jurors that Musk “cheated investors” by tweeting false and misleading information in a calculated effort to shave billions of dollars off the purchase price.
“We’re here today because Elon Musk cheated investors,” Molumphy said, adding that the evidence would show Musk “knew exactly what he was doing” when he announced in May 2022 that the Twitter buyout was “temporarily on hold”.
The investors are particularly focused on Musk’s statements questioning Twitter’s disclosures about the proportion of spam and fake accounts, commonly referred to as bots, on the platform. When Musk tweeted on May 13, 2022, that the deal was on hold pending details about spam accounts, Twitter shares fell nearly 20 per cent in premarket trading and closed down around 10 per cent that day. The stock remained volatile in the months that followed.
According to court filings, investors argue that Musk’s tweet created the false impression that the deal was in jeopardy, even though takeover discussions were continuing behind the scenes. They contend that his purported concerns over spam accounts were a pretext for renegotiating the price or exiting the agreement altogether.
The plaintiffs have not publicly disclosed the quantum of damages they are seeking.
Musk denies wrongdoing
Musk’s legal team has strongly rejected the allegations. Michael Lifrak, one of his lawyers, told jurors that none of Musk’s statements were false and that he genuinely believed the information he shared at the time.
“The evidence will show Mr Musk didn’t commit securities fraud and it isn’t even close,” Lifrak said, adding that Musk would testify to demonstrate that his concerns about Twitter’s customer base were real and not part of any deceptive scheme.
In a defence strategy reminiscent of earlier courtroom battles, Musk’s lawyers have argued that it is impossible to conclusively link his tweets to specific movements in Twitter’s share price. They maintain that broader market forces and investor sentiment also played a role in the stock’s fluctuations.
Musk is expected to take the stand as a key witness in the trial.
Revisiting a turbulent takeover
The trial revisits a chaotic six-month period in 2022 during which Musk oscillated between pursuing a hostile takeover of Twitter, attempting to withdraw from the deal and ultimately completing the acquisition after the company sued him to enforce the contract.
Twitter had filed suit in Delaware to compel Musk to honour the agreement. The dispute ended when Musk agreed to proceed with the purchase at the original price.
The episode marked one of the most dramatic corporate takeovers in recent US history and highlighted Musk’s unconventional communication style, particularly his habit of making market-moving announcements on social media.
Past legal battles
Musk’s courtroom history forms an important backdrop to the current case. In 2018, he reached a settlement with the US Securities and Exchange Commission (SEC) after tweeting that he had “funding secured” to take Tesla Inc. private. The regulator accused him of securities fraud, and the settlement required Musk to have certain social media posts pre-approved by company lawyers.
In 2023, Musk prevailed in a San Francisco trial brought by Tesla investors over the same “funding secured” tweet. Jurors deliberated for just two hours before clearing him of wrongdoing.
He also avoided approximately $2 billion (around ₹16,000 crore) in damages in a Delaware trial related to Tesla’s acquisition of SolarCity Corp.. More recently, the Delaware Supreme Court reinstated his Tesla pay package after a lengthy legal battle.
Legal experts say that demonstrating intent will be a central challenge for the plaintiffs in the Twitter case. Proving that Musk deliberately sought to tank the stock for personal benefit requires more than showing that his statements coincided with a drop in share price.
What lies ahead
The outcome of the trial could have significant implications for corporate communications and executive accountability in the age of social media. If investors succeed, it may set a precedent regarding how market-moving statements made on personal accounts are treated under securities law.
Regardless of the verdict, Musk continues to face other legal challenges related to the Twitter acquisition, including an investor lawsuit in New York and a separate SEC case in Washington. He has denied wrongdoing in those matters as well.
As proceedings unfold in San Francisco, the case once again places one of the world’s most high-profile entrepreneurs at the centre of a closely watched courtroom battle, with potential ramifications for markets and corporate governance alike.