Elon Musk is in court, once again, today in San Francisco. In this case, he is accused of leveraging his audience to devalue Twitter’s stock price before purchasing the social media platform 2022.
In October 2022, the lawsuit was started by Twitter shareholders in the U.S. District Court for the Northern District of California. This specific set of shareholders sold their stocks between May 13 and Oct. 4, 2022, just a few week before Musk’s gained full ownership of Twitter.
Musk is accused of violating federal securities laws by making false, public statements that “were carefully calculated to drive down the price of Twitter stock.”
A calculated cause
The lawsuits states that, “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”.
In April 2022, Musk’s deal to purchase twitter and privatize the business was sealed. On May 13th, 2022, he decided to put it on hold in order to weed out the amount of fake accounts populating the app. That same day, the stock fell nearly 10%.
This lead to Twitter’s stock taking a tumble. Quintessentially, Musk tweeted, ironically, that the deal could not proceed because around 20% of Twitter accounts were “fake”.
When questioned by the plaintiff’s lawyer, Musk stated that he didn’t believe Twitter was the “material” he was looking for in early 2022. At the same time, he was collecting Twitter without publicly discussing it. He also did not disclose it to the Securities and Exchange Commission.
In his defence, Musk simply explained that he bought a lot of stock in different companies without posting about it. As soon as he announced his involvement with Twitter, the stock rocketed up 27%.
Definance and indecision
However, the point of contention between the shareholders and Musk sharpened in the weeks following. After his initial Tweet about pausing the purchase of the platform, he continued to express disdain and disinterest for the deal.
Musk claimed that he would drop Twitter if it failed to prove that the desired majority of the user base was legitimate. With his staggering online presence and influence, this impacted public opinion, which resulted in the stock dip.
Notably, Twitter never agreed to put the deal on hold. It was heavily one sided on Elon Musk’s part.
On July 8th, 2022, Musk tweeted that he was abandoning the purchase due to, what he claimed, was insufficient information about the number of fake verses real Twitter users. In his words, Twitter “lied” about the numbers in saying that 5% of accounts were bots — wether or not this is true of false is unclear.
That same day, Twitter’s stock closed at $36.81 — 32% less than Musk’s offer price of $54.20 per share.
Back-and-forth in court
After a series of court battles between Musk and Twitter, the deal finally closed in October 2022. The world’s wealthiest man bought Twitter for $44 billion and renamed it “X” in 2023.
Since then, the app has appeared in the news numerous for many controversial reasons, including an overhaul of the employee-base, unreasonable expectations and the proliferation of hate speech.
The case between Musk and the Twitter shareholders is ongoing. What do you think? Did Elon Musk strategically tank Twitter stock before purchasing the company?
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