Elon Musk testifies in Twitter shareholder trial over actions before purchase

Elon Musk took the stand in a shareholder trial on Wednesday in San Francisco, where he’s accused of making false and misleading statements that drove down Twitter’s stock price before he bought the social media platform for $44 billion in 2022.

The lawsuit was filed in October 2022 in the U.S. District Court for the Northern District of California on behalf of Twitter shareholders who sold the stock between May 13 and October 4, 2022, a few weeks before Musk’s purchase of Twitter was finalized. It claims Musk violated federal securities laws by making false, public statements that “were carefully calculated to drive down the price of Twitter stock.”

The billionaire Tesla CEO reached a deal to buy Twitter and take it private in April 2022. On May 13, however, he declared his plan “temporarily on hold” and said he needed to pinpoint the number of spam and fake accounts on the platform. Twitter’s stock tumbled as a result.

A few days later, Musk tweeted that the deal “cannot go forward” and claimed that almost 20% of Twitter accounts were “fake,” according to the lawsuit.

The plaintiff’s lawyer, Aaron P. Arnzen, began by questioning Musk about his tweets—or lack thereof—regarding his decision to buy Twitter and his purchases of Twitter stock prior to deciding to take the company private.

Wearing a black suit and tie, Musk said he didn’t think it was “material” when, in early 2022, he began amassing Twitter stock and did not tweet about it or disclose it to the Securities and Exchange Commission (SEC). He explained that he had bought stock in “many companies” and did not post about it.

Once he did announce his involvement with Twitter, the company’s stock jumped 27% in one day. “That sounds high,” Musk commented.

The lawsuit points out that Musk’s May 13 tweet stating, “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” was false because the buyout was not, in fact, “temporarily on hold.” Twitter did not agree to pause the deal, and there was nothing in the merger agreement that allowed Musk to do so.

Arnzen questioned Musk at length about the tweet, asking if he thought it would have a “material impact” on Twitter’s stock. Musk said he made it clear at the time that he was committed to the deal and compared saying the deal was temporarily on hold to “like saying you’re going to be late for a meeting. (It doesn’t) mean you are not going to be at the meeting.”

Twitter’s stock fell nearly 10% on May 13. Arnzen repeatedly asked if Musk considered how the tweet would affect the stock market. Musk responded repeatedly, “I was simply speaking my mind.”

In the following weeks, Musk continued to try to delay or back out of the deal. The lawsuit claims he did this through false and disparaging statements about Twitter’s business that sharply drove down the company’s stock price.

In July 2022, Musk intensified his focus on the issue of bots and said he would abandon his offer to buy Twitter after the company failed to provide sufficient information about the number of fake accounts. This, despite Musk waiving due diligence for his “take it or leave it” offer, meaning he gave up his right to inspect the company’s nonpublic finances.

During the trial, Musk was repeatedly asked if, before waiving due diligence, he inquired about Twitter’s methodology for determining the number of fake or spam accounts, which Twitter estimated to be about 5%. Musk said he did not ask but assumed that if Twitter disclosed something in an SEC filing, “it would be accurate.” He added, “It subsequently turned out they misrepresented the number of bots. They lied.”

The stock closed at $36.81 on July 8, the day Musk tweeted he was abandoning the deal over the fake accounts issue. That price was 32% below Musk’s offer 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 lawsuit alleges.

The problem of bots and fake accounts on Twitter was not new. The company paid $809.5 million in 2021 to settle claims it was overstating its growth rate and monthly user figures. Twitter also disclosed its bot estimates to the SEC for years while cautioning that its estimate might be too low.

Twitter sued Musk to force him to complete the deal, and Musk countersued. On October 4, Musk offered to proceed with his original proposal to buy Twitter for $44 billion, which Twitter accepted. The deal closed later that month.

In the months that followed, Musk slashed Twitter’s workforce, gutted its trust and safety team, and rolled back content moderation policies. In July 2023, he renamed Twitter as X.
https://www.cbsnews.com/news/elon-musk-twitter-shareholder-trial-testimony/

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