Elon Musk Takes the Stand in Shareholder Trial

Elon Musk testified on Wednesday during a shareholder trial in San Francisco. He faces allegations of making false and misleading declarations that reportedly led to a decrease in Twitter’s stock value prior to his $44 billion acquisition of the social media platform in 2022.

The lawsuit, initiated in October 2022 in the U.S. District Court for the Northern District of California, represents Twitter shareholders who sold their shares between May 13, 2022, and October 4, 2022, shortly before Musk’s acquisition was finalized. The plaintiffs contend that Musk infringed upon federal securities laws by issuing public statements designed to intentionally lower Twitter’s stock price.

Musk had agreed to purchase Twitter and transition it to a privately held company in April 2022. However, on May 13, he announced that the plan was “temporarily on hold,” citing the need for an accurate assessment of spam and fake accounts on the platform.

This announcement led to a significant drop in Twitter’s stock price. Shortly afterward, Musk tweeted that “the transaction cannot proceed,” asserting that nearly 20% of Twitter accounts were “fake,” as indicated in the lawsuit.

The plaintiffs’ attorney, Aaron P. Arnzen, began questioning Musk about his decision-making process regarding the Twitter purchase and his tweets—or notably, the absence of tweets—about acquiring Twitter stock prior to privatization.

Musk, dressed in a black suit and tie, remarked that he didn’t believe it was “important” to disclose when he began buying Twitter stock in early 2022, and, as such, he didn’t communicate any of this to the Securities and Exchange Commission. He mentioned that he had acquired stock in various companies without posting about them.

Later, following his statements, Twitter’s stock saw a jump of 27% in just one day.

Musk remarked, “That sounds lofty.”

The complaint states that Musk’s May 13 tweet, “Twitter deal on hold pending details to support calculation that spam/fake accounts actually account for less than 5% of users,” was misleading because the acquisition was never actually “on hold.” It emphasizes that Twitter did not consent to pausing the deal and that the merger agreement did not give Musk the authority to do so.

Arnzen pressed Musk on whether he believed this tweet would have a “material impact” on Twitter’s stock, to which Musk insisted at the time that he remained committed to the deal, likening a pause to saying one would be late to a meeting—implying it didn’t indicate a lack of intent to follow through.

On May 13, Twitter’s stock dropped almost 10%.

Arnzen persistently questioned Musk on whether he considered how his tweets would influence the stock market. Musk repeatedly replied, “I was just saying what I thought.”

In subsequent weeks, Musk attempted to delay or backtrack on the deal, but the lawsuit claims he made false statements about Twitter’s business that led to a further decline in stock prices.

By July 2022, Musk reiterated concerns about fake accounts, announcing he would abandon the acquisition due to Twitter’s insufficient information on the topic. This contradicted the claim that he had waived due diligence during his “take it or leave it” offer to acquire Twitter, meaning he gave up his right to probe the company’s private financial details.

On July 8, the day Musk tweeted about abandoning the deal over fake accounts, Twitter’s stock closed at $36.81—32% below his offer price of $54.20 per share.

Musk was questioned about his approach to assessing the number of fake and spam accounts, noted to be around 5% before he halted due diligence. He argued that if Twitter reported something in its SEC filing, “it would be accurate,” but then claimed that they were misrepresenting the count of bots, asserting, “They lied.”

The stock closed on July 8 at $36.81, significantly beneath the offer price Musk presented.

The lawsuit accuses Musk of engaging in a scheme to mislead the market with materially false and deceptive statements to renegotiate the price and delay the merger, violating legal statutes in the process.

This isn’t the first time issues related to fake accounts have arisen; in 2021, Twitter settled for $809.5 million over allegations of inflating growth rates and user numbers. The platform has disclosed bot estimates to the SEC for years while cautioning that these figures might be underestimated.

Twitter initially sued Musk to compel him to complete the deal, and he subsequently countersued. On October 4, Musk indicated he would proceed with his initial $44 billion offer, which Twitter accepted. The deal was finalized later that month. Following the acquisition, Musk implemented significant layoffs, dismantled the trust and safety team, and altered content moderation policies. In July 2023, he even changed Twitter’s name to X.