Elon Musk Faces Market Manipulation Lawsuit Over 2022 Twitter Tweets

Elon Musk is currently defending himself in a San Francisco court against accusations of market manipulation related to tweets he posted during the 2022 acquisition of Twitter, now known as X Corp. The central issue revolves around a tweet announcing the deal was “temporarily suspended,” which immediately caused Twitter’s share price to plummet.

The Tweet and Its Impact

On April 14, 2022, Musk initiated the acquisition of Twitter, Inc. For $44 billion, becoming its largest shareholder with a 9.1% stake by April. After initially accepting an invitation to join Twitter’s board, he declined and subsequently made an unsolicited offer to purchase the company. Twitter’s board initially resisted with a “poison pill” strategy but ultimately accepted Musk’s buyout offer on April 25, 2022. However, weeks later, Musk tweeted that the acquisition was “temporarily suspended” pending verification that spam/fake accounts represented less than 5% of users. This tweet led to a nearly 9% drop in Twitter’s share price at the opening of the market.

Concerns Over Bots and Renegotiation

Musk expressed concerns about the number of bot accounts on the platform, alleging that investors had misrepresented the figures. He later stated the agreement “cannot go forward” and accused Twitter of lying in its regulatory filings. The share price continued to fall, reaching around $30, a third less than the agreed-upon deal price of $54.20 per share. Shareholders who sold their shares at this lower price are among those filing the lawsuit.

Allegations of a “Smear Campaign”

Investors argue that Musk’s tweet was not a simple comment but a deliberate strategy to pressure Twitter’s management into renegotiating the buyout price. The plaintiffs’ lawyer stated, “Musk believes he can say and do whatever he wants, whenever he wants, without worrying about the consequences,” and accused him of orchestrating a “public smear campaign” to discredit the company and drive down the stock price after struggling to secure financing for the deal.

Musk’s Defense

Musk maintains that his tweet should be taken literally, indicating a delay in the meeting, not a cancellation of the deal. He as well claimed he did not consider the potential impact on investors. He admitted the tweet “wasn’t my smartest tweet” and acknowledged it “could probably” be considered foolish given the lawsuit.

Emails Suggest a Negotiation Strategy

Emails presented in court from Barclays bankers suggest a strategy of threatening to withdraw from the deal to potentially “revisiting the price.” One email, dated May 9, 2022, advised creating the “impression of being prepared to take the risk of paying the costs of breaking the contract” to convince Twitter to accept a lower price. Following the tweet, another email noted investors believed the deal had a “50/50 chance” of going through, with the share price remaining low due to fears of further impactful tweets.

Musk’s Dismissal of Accusations

Musk dismissed the accusations, stating he was simply expressing his concerns about bot accounts. He asserted that predicting market reactions is impossible, describing them as “manic depressive.” He also criticized the lawyers’ questioning, accusing them of attempting to mislead the jury and elicit statements he hadn’t made, and cited a “crazy workload” of nearly 100 hours per week as a reason for being unprepared for the hearing.

Potential Damages and Deal Completion

If the jurors side with the investors, the potential damages could amount to billions of dollars. Despite the threats and tweets, Musk ultimately completed the acquisition in October 2022 at the initially agreed-upon price of $54.20 per share after a legal battle with the board of directors.