Musk's $44 Billion Twitter Acquisition Allegedly Involved Misleading Investors, Could Face $2.6 Billion in Damages

How do Elon Musk’s tweets become a key part of acquisition strategies?

IT Home, March 21 — On Friday, a jury in the U.S. District Court in California ruled that Elon Musk misled Twitter shareholders with two tweets during his $44 billion (approximately 303.593 billion RMB at current exchange rates) acquisition of Twitter in 2022. The plaintiffs’ lawyers stated that Musk could face damages of up to $2.6 billion (about 179.4 billion RMB at current exchange rates).

This class-action lawsuit was filed in October 2022, shortly after Musk completed his Twitter purchase at $54.20 per share. He later renamed the company X and merged his xAI and SpaceX into it.

Joseph Cochett, the lawyer representing Twitter investors, told CNBC outside the San Francisco court, “This is a good example showing you can’t do this to ordinary investors — those with 401k pensions, children, pension funds, teachers, firefighters, nurses. That’s the core issue here. It’s not about Musk, but about the entire operation.” Musk’s legal team declined to comment, and they are expected to appeal.

The case focused on two tweets Musk posted in May 2022 and his comments on a podcast. After four days of deliberation, the jury unanimously found that the two tweets on May 13 and May 17 contained false or misleading information. However, the jury also ruled that Musk’s statements on the podcast did not constitute misdirection or conspiracy to defraud investors.

At the time, Musk tweeted that the Twitter acquisition was “temporarily on hold” until Twitter’s CEO could prove that the proportion of fake accounts and bots on the platform was indeed around 5%, as reported. These comments caused Twitter’s stock to plummet nearly 10% in a single day.

Former Twitter shareholders (including retail investors and options traders) argued that Musk’s statements were a pressure tactic aimed at forcing Twitter’s board to sell the company at a price below the original offer. The plaintiffs claimed Musk’s motive was related to Tesla’s falling stock price — meaning he needed to sell more Tesla shares than planned to finance the acquisition. They stated that after Musk posted the tweets and gave media interviews, they sold their shares at prices below $54.20. The potential damages are estimated based on expert assessments of Musk’s repeated reversals and their impact on the stock price during the class-action period.

Although the jury found that Musk made false and misleading statements that harmed some Twitter shareholders, it did not find evidence of a conspiracy to commit fraud against investors. The plaintiffs’ lawyers said that claims management would take about 90 days to establish, and then the government would need several months to process the claims before investors could start recovering some losses.

Musk’s lawyers previously argued that his statements were based on reasonable concerns about the high number of bots, spam, and fake accounts on Twitter, and did not constitute securities fraud or a conspiracy to depress the company’s stock price. Since this is a class-action case, the amount Musk may have to pay to thousands of shareholders (many of whom are institutional investors) remains unclear, but the jury awarded shareholders approximately $3 to $8 per share daily in damages.

Bloomberg estimates Musk’s current net worth at around $650 billion (roughly 4.48 trillion RMB at current exchange rates), mostly tied to Tesla stock. Notably, although this ruling poses a serious legal challenge to Musk, the financial impact is relatively limited given his enormous net worth.

During the trial, Musk testified that the number of fake and spam accounts on Twitter was far higher than the 5% disclosed in SEC filings, and used this as a reason to try to back out of the deal. After attempting to withdraw, Twitter sued in Delaware to enforce the original agreement. Just before the case was scheduled to go to trial, Musk reversed course again and agreed to complete the acquisition at the original price.