Judge delivers mixed bag to Elon Musk in Twitter fraud case appeal

A federal judge denied Elon Musk‘s effort to upend a March jury verdict that he defrauded investors during his 2022 Twitter acquisition, though the judge handed Musk a minor concession in the dispute over his social media posts.

U.S. District Judge Charles Breyer ruled Monday that Musk’s May 13, 2022, tweet complaining about the number of bot accounts on Twitter, now called X, did deflate the social media platform’s stock price just as he was in negotiations to purchase it. Yet Breyer struck down a separate claim that a tweet from Musk four days later did the same.

“Buyer’s remorse is not an exception to the securities laws,” Breyer wrote in his Monday decision. “These laws, in their essence, are about trust. Trust that the country’s financial markets are fair, honest, and transparent.”

The plaintiffs, who sold Twitter stock between May 13 and Oct. 4, 2022, argue that Musk knowingly made misleading public statements to drive down Twitter’s stock price after agreeing to buy the company. They contend Musk used the bot issue as a pretext to renegotiate or escape the deal, causing shareholders who sold their stock at depressed prices to suffer losses.

At play are two posts that Musk made on Twitter during his negotiations to acquire the platform. Musk wrote on May 13, 2022, that his deal was “temporarily on hold” pending confirmation that bot accounts did “indeed represent less than 5% of users,” as Twitter had claimed. He added in a subsequent May 17 post that the bot ratio “could be *much* higher” than Twitter had claimed.

Breyer found there was “substantial evidence of falsity” to Musk’s May 13 claim, which suggested to the public that he had the right to pause the deal. In fact, Musk had waived due diligence and agreed to buy Twitter without conducting an extensive audit.

“There was also evidence that Musk’s publicly-stated reason for his problem with the deal — the number of bots on Twitter — was something he knew he was misrepresenting,” Breyer added.

Yet Breyer disagreed with the jury that Musk’s May 17 post amounted to securities fraud. Breyer found that Musk did not meaningfully manipulate market prices, which were already depressed after his May 13 tweet.

Musk’s lawyers had also claimed that the jury was prejudiced against Musk because it had written “$4.20” in blue ink on a legal document, whereas it had used black ink for all other values. The number “420” is associated with marijuana, which Musk has consumed publicly and joked about in the past.

“Consequently, it is also possible that a jury in San Francisco recognized and appreciated the joke — just as Musk has,” Breyer quipped.

A lawyer for the shareholders estimated in March that Musk could be liable for up to $2.5 billion in damages, though that figure may change in light of Monday’s ruling. Musk has not exhausted his appeal options in the case.

“On behalf of the plaintiffs, we are very pleased with the orders, which support the jury’s verdict,” a lawyer for the shareholders said, adding they appreciated “all the hard work that the jury did during the trial.”

The fraud dispute is another episode in a string of legal setbacks for the world’s richest man, who also lost two recent lawsuits against AI rival OpenAI.

The Washington Examiner also reached out to Musk’s lawyers in the fraud case for comment.