Elon Musk took the stand in a shareholder trial on Wednesday in San Francisco, where he’s accused of making false and misleading statements that drove down Twitter’s stock price before he bought the social media platform for $44 billion in 2022.
The lawsuit was filed in October 2022 in the US District Court for the Northern District of California on behalf of Twitter shareholders who sold the stock between May 13 and Oct. 4, 2022, a few weeks before Musk’s purchase of Twitter was finalized. It claims Musk violated federal securities laws by making false, public statements that “were carefully calculated to drive down the price of Twitter stock.”
The billionaire Tesla CEO reached a deal to buy Twitter and take it private in April 2022. On May 13, however, he declared his plan “temporarily on hold” and said he needs to pinpoint the number of spam and fake accounts on the platform.
Twitter’s stock tumbled as a result. A few days later, he tweeted that the deal “cannot go forward” and claimed that almost 20% of Twitter accounts were “fake,” according to the lawsuit.
The plaintiff’s lawyer, Aaron P. Arnzen, began with questioning Musk about his tweets — or lack of tweets — about his decision to buy Twitter and his purchases of Twitter stock prior to deciding to take the company private.
Wearing a black suit and tie, Musk said he didn’t think it was “material” when, in early 2022, he began amassing Twitter stock and did not tweet about it or disclose to the Securities and Exchange Commission. He said he’s bought stock in “many companies” and did not post about it.
Once he did, Twitter’s stock jumped 27% in one day.
“That sounds high,” Musk said.
Musk’s May 13 tweet — “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users” — was “false because the buyout was not, in fact, ‘temporarily on hold,’” the lawsuit says. That’s because Twitter did not agree to put the deal on hold, and there was nothing in the merger agreement the two parties signed that allowed Musk to put it on hold, according to the lawsuit.
Arnzen questioned Musk about the tweet at length, asking if he thought whether it would have a “material impact” on Twitter’s stock. Musk said he made it explicit at the time that he was committed to the deal and that saying the deal was temporarily on hold was “like saying you’re going to be late for a meeting. (It doesn’t) mean you are not going to be at the meeting.”
Twitter’s stock fell nearly 10% on May 13.
Arnzen repeatedly asked Musk if he stopped to think about how the tweet would affect the stock market. Musk answered, repeatedly, “I was simply speaking my mind.”
In the following weeks, Musk continued to try to delay or get out of the deal, which the lawsuit claims he did in the form of false, disparaging statements about Twitter’s business that drove the San Francisco company’s stock down sharply.
In July 2022, Musk doubled down on the bots issue and said he would abandon his offer to buy Twitter after the company failed to provide enough information about the number of fake accounts. That’s even though the lawsuit notes that Musk waived due diligence for his “take it or leave it” offer to buy Twitter. That means he waived his right to look at the company’s nonpublic finances.
Musk was repeatedly asked Thursday if, before waiving due diligence, he asked about Twitter’s methodology for determining the number of fake or spam accounts, which the company disclosed to be about 5%. Musk said he did not, but that he assumed if Twitter put something in an SEC filing, “it would be accurate.”
“It subsequently turned out they misrepresented the number of bots,” he said. “They lied.”
The stock closed at $36.81 on July 8, when Musk tweeted he was abandoning the deal over the fake accounts issue. That’s 32% below Musk’s offer price of $54.20 per share.
“To try to renegotiate the price or delay the merger, Musk made materially false and misleading statements and omissions, and engaged in a scheme to deceive the market, all in violation of the law,” the lawsuit says.
The problem of bots and fake accounts on Twitter wasn’t new. The company had paid $809.5 million in 2021 to settle claims it was overstating its growth rate and monthly user figures. Twitter also disclosed its bot estimates to the Securities and Exchange Commission for years, while also cautioning that its estimate might be too low.
Twitter sued Musk to force him to complete the deal, and Musk countersued. On Oct. 4, Musk offered to go through with his original proposal to buy Twitter for $44 billion, which Twitter accepted. The deal closed later that month. In the ensuing months, Musk slashed the company’s workforce, gutted its trust and safety team and rolled back content moderation policies. In July 2023, he renamed Twitter as X.
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