Musk Set to Testify in Trial Over Twitter Stock Price Manipulation Claims

Tesla CEO Elon Musk will testify Wednesday in a San Francisco courtroom where shareholders accuse him of deliberately making false statements to drive down Twitter's stock price before his $44 billion purchase. The lawsuit claims Musk violated federal securities laws through calculated public statements designed to manipulate the market.

Tesla CEO Elon Musk will appear in a San Francisco courtroom Wednesday to defend against allegations that he intentionally made misleading public statements to manipulate Twitter’s stock price before acquiring the social media company for $44 billion in 2022.

The legal action was initiated in October 2022 in federal court in Northern California, representing Twitter investors who sold their shares between May 13 and October 4, 2022, just weeks prior to Musk finalizing his Twitter acquisition. The complaint alleges Musk broke federal securities regulations through deliberate public declarations that “were carefully calculated to drive down the price of Twitter stock.”

The Tesla billionaire initially agreed to purchase Twitter and convert it to a private company in April 2022. However, on May 13, he announced his intention was “temporarily on hold” while claiming he needed to determine the actual number of spam and fraudulent accounts on the service. Twitter’s share value plummeted following this announcement. Days afterward, he posted on Twitter that the transaction “cannot go forward” while asserting nearly 20% of Twitter profiles were “fake,” the legal filing states.

According to the lawsuit, Musk’s May 13 social media post — “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users” — contained false information because the acquisition was not actually “temporarily on hold.” The suit argues Twitter never consented to pausing the deal, and the signed merger contract contained no provisions allowing Musk to suspend it unilaterally.

Over the subsequent weeks, Musk persistently attempted to postpone or escape the agreement through what the lawsuit characterizes as false, damaging public statements about Twitter’s operations that caused the San Francisco-based company’s stock to drop dramatically.

By July 2022, Musk intensified his focus on the bot controversy and declared he would withdraw his purchase offer after Twitter allegedly failed to supply adequate data about fraudulent accounts. The lawsuit points out that Musk had previously waived due diligence requirements for his “take it or leave it” Twitter bid, meaning he surrendered his right to examine the company’s confidential financial records.

On July 8, when Musk announced via Twitter he was withdrawing from the deal due to fake account concerns, the stock finished trading at $36.81. This represented a 32% decline from Musk’s proposed purchase price of $54.20 per share.

“To try to renegotiate the price or delay the merger, Musk made materially false and misleading statements and omissions, and engaged in a scheme to deceive the market, all in violation of the law,” the legal complaint states.

The issue of automated accounts and fake profiles on Twitter was not a recent discovery. The platform had previously paid $809.5 million in 2021 to resolve allegations it was inflating its user growth statistics and monthly active user counts. Twitter had also regularly reported its bot calculations to the Securities and Exchange Commission for years while acknowledging its estimates might be conservative.

Twitter initiated legal proceedings against Musk to compel completion of the transaction, prompting Musk to file a countersuit. On October 4, Musk agreed to proceed with his original $44 billion offer, which Twitter accepted. The acquisition concluded later that month. Following the purchase, Musk dramatically reduced the company’s staff, eliminated its trust and safety department, and reversed content oversight policies. In July 2023, he rebranded Twitter as X.

This marks another instance where Musk faces courtroom scrutiny over accusations of misleading investors through his social media activity. Three years earlier, Musk testified for approximately eight hours in a San Francisco federal courthouse regarding his plans to take Tesla private — the electric vehicle manufacturer he continues to lead as a public company — for $420 per share in a proposed 2018 transaction that never occurred. A nine-person jury cleared Musk of any wrongdoing in that matter.