Elon Musk liable for securities fraud over Twitter posts

A San Francisco jury found Elon Musk liable for securities fraud for two social media posts he made during his 2022 acquisition of Twitter, including one that said the deal was "temporarily on hold" due to the prevalence of fake accounts on the platform. Twitter's stock fell by nearly 10% on the day of the post.

The jury rejected the claim that Musk's posts were part of a scheme to lower Twitter's stock price before he bought the company.

Damages were calculated on a share-by-share basis, depending on the day of the class period, but plaintiffs' attorney Mark C. Molumphy of Cotchett, Pitre & McCarthy LLP said plaintiffs expect the total payout to be around $2.6 billion, depending on the number of claims that are filed. Of the total, $2.1 billion could go to people who sold Twitter stock, while the remaining $500 million could go to option holders.

"It's an important victory not just for investors of Twitter but for the public markets," Molumphy said outside of the courtroom Friday. "Having a market that's free from manipulation -- I think the jury's verdict sends a strong message that just because you're a rich and powerful person, you still have to obey the law."

Musk plans to appeal, according to a statement from his attorneys, Quinn Emanuel Urquhart & Sullivan LLP.

"We view today's verdict, where the jury found both for and against the plaintiffs and found no fraud scheme, as a bump in the road. And we look forward to vindication on appeal," the firm's statement said.

The plaintiffs alleged Musk made three false statements -- all related to the fake account issue -- as part of a broader scheme to tank the stock price and renegotiate the deal after getting buyer's remorse. Musk sent a letter to Twitter purporting to terminate the $44 billion deal in July 2022, despite signing a binding agreement that April. Twitter, which Musk later renamed X, sued to enforce the deal, which went through that October.

The jury found the scheme claim had not been proven. The jury also declined to find Musk liable for one of the three statements the plaintiffs alleged were false.

Musk's team argued that the deal went south after Twitter officials refused to provide information backing their estimate that less than 5% of accounts were fake, leading the Tesla CEO to doubt the accuracy of the company's SEC filings. The attorneys argued Musk thought that was grounds to terminate the deal and each of the statements in question reflected his belief at the time.

The tense two-week trial featured testimony from Musk, members of his deal team and several former Twitter executives. Musk's attorney Alexander B. Spiro took the stand, as did Twitter's deal lawyer, Wilson Sonsini Goodrich & Rosati's Martin W. Korman, and its former general counsel, Vijaya Gadde.

The plaintiffs presented testimony that Musk hadn't directed anyone on his team to stop working on the acquisition, and that he'd waived his right to conduct due diligence before signing the binding merger agreement, rendering it misleading to claim the deal was on hold. His statements that the share of fake accounts on Twitter was much higher than 5% were based on a single blog post at best, plaintiffs said, but more likely just a gut feeling.

"Juries are exceptional at parsing out credible and non-credible evidence and testimony," plaintiffs' attorney Aaron P. Arnzen of Bottini & Bottini Inc. said after the verdict. "It was really clear in this case that the credible testimony, the real evidence, what really happened, strongly supported the plaintiffs' case."

The defense pointed to a May 6 meeting at Twitter's San Francisco headquarters where Musk's questions about the company's methodology for determining the number of fake accounts were met with vague responses. When the company finally provided a more detailed response, it was filled with corporate buzzwords, Musk said, so he requested the underlying data to make his own calculation. When Twitter didn't provide the data, his lawyers argued, Musk came to believe that Twitter was worth far less than he'd initially thought and that the company had lied on its SEC filings, which gave him a way out of the deal.

Musk's team featured some of the same Quinn Emanuel lawyers that secured a verdict in his favor three years ago in a securities fraud lawsuit over social media posts regarding his stake in Tesla. According to Molumphy, Friday's verdict shows that a jury can hold Musk accountable for what he posts on social media when it affects the market.

"From our knowledge, this is the first time a jury has held Elon Musk liable for what he's tweeting out there," Molumphy said. "He's done this, obviously, in the past. I think the verdict here was different because the evidence was overwhelming."