Elon Musk returns to San Francisco federal court to face a fraud trial today overseen by US District Judge Charles Breyer. Musk will be defending himself against claims he schemed to tank Twitter’s stock price before he acquired the company in October 2022.
Investors who filed the lawsuit, a group that includes people who sold Twitter shares after Musk announced his bid, allege that in the months leading up to the final sale, the Tesla and SpaceX CEO undertook a fraudulent campaign to wriggle out of — or renegotiate — the $44 billion deal. The group is seeking to recoup as much as $1 billion in damages for the losses they claim Musk’s tweets and statements cost them.
In April 2022, Twitter was not for sale, yet Musk informed the company’s board that he intended to buy it for $43 billion and take it private. Despite the board’s misgivings, Musk, who’d already quietly accumulated a significant number of Twitter shares, muscled through a deal on April 25. Both sides agreed it would take several months to finalize shareholder approval.
Less than three weeks later, Musk began publicly disparaging Twitter’s finances and management, often on the platform itself. By July 2022, he notified regulators that he wanted out of the deal completely.
Musk ended up buying Twitter for $44 billion in October that year, after Twitter sued to force him to make good on his original offer six months earlier.
It’s rare for shareholder suits to go to trial. Most get thrown out or settled. The majority are based on losses shareholders suffered due to the price drops of stock they held; today’s trial hinges on losses investors claim they suffered when they sold their shares, at various points during Musk’s public dance with Twitter. The litigants are claiming that they got less than they deserved because Musk was torpedoing Twitter’s stock price.
The alleged scheme started with Musk’s tweet of May 13, 2022 at 2:44 a.m. that read, “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.” Four days later, Musk posted that 20 percent or more of Twitter’s accounts could be fake. He accused the company of overstating its value by understating the number of fake accounts.
At a pretrial hearing on Feb. 20 of this year, Francis Bottini, a lawyer representing the investors, told Judge Breyer that the May 13, 2022 tweet caused an “elevator drop” in Twitter’s stock price.
“There’s an immediate price impact due directly to Mr. Musk’s statement – there’s nothing else that this could be attributed to,” Bottini said. By Bottini’s calculations, investors selling Twitter shares that day got $6.17 less per share than they would’ve without Musk’s meddling.
Musk denies the claims, arguing in a court filing that his posts and statements reflected “the true state of affairs.”
Judge Breyer quickly eliminated almost half of the initial pool of 93 potential jurors for the trial because of their biases. Stephen Broome, a lawyer representing Musk, lamented what he described as the “overtly vitriolic” responses from potential jurors, 55 of whom said they could not be fair to Musk.
“I wouldn’t be surprised if he buys off jurors,” one of them wrote in the questionnaire, Broome read aloud in court.
Breyer noted that the number of expletives in the questionnaires set a new “record of responses that I’ve never seen before.”
The trial will take place just a half mile from the building Musk entered carrying a sink to signal his ownership of the social media platform in October 2022. Musk cut 80 percent of the staff, rebranded it X, and moved the company to Texas. It’s a court he and his lawyer, Alex Spiro, are familiar with. They have fought numerous labor suits at the same courthouse over the firings. Three years ago, Musk and Spiro successfully won another trial in a case brought by shareholders who claimed they were defrauded by Musk’s tweet that he was considering taking Tesla private.
This trial is unusual in another respect: Spiro will wear two hats as an “advocate-witness,” meaning he will serve as both Musk’s lead lawyer, and will be called as a witness for the investors.
Spiro’s deep involvement in the Twitter acquisition served as grounds for lawyers representing the investors to try to get him disqualified as Musk’s attorney at trial. Breyer ultimately rejected the request, hewing to Musk’s right to his lawyer of choice.
As a compromise, Breyer has sharply curtailed how much jurors will learn about the role lawyers, and Spiro in particular, played in the Twitter transaction. The aim is to create an artificial “wall,” the judge said, separating Spiro the witness from Spiro the lawyer.
“You’re all going to engage in some fiction here,” the judge told attorneys for both sides at the hearing. “And the fiction is you’re taking the lawyers out of the deal. Let’s pretend nobody is a lawyer. In that perfect world.”
