Judge scraps Musk’s attempt to toss Twitter fraud verdict

SAN FRANCISCO (CN) — A federal judge Monday rejected Elon Musk’s bid to sidestep a jury’s verdict finding the world’s first trillionaire defrauded Twitter investors in his $44 billion buyout of the social media platform in 2022.

U.S. District Judge Charles R. Breyer granted Musk’s motion for judgment as a matter of law as to statements he made on May 17, 2022, but denied the motion in all other respects.

The Bill Clinton appointee also denied Musk’s motion to decertify the class and granted the plaintiffs’ motions for prejudgment interest, approval of their proposed class notice and claims administration procedure.

“Buyer’s remorse is not an exception to the securities laws. These laws, in their essence, are about trust. Trust that the country’s financial markets are fair, honest, and transparent. The market always picks winners and losers, but it is vital that those outcomes are free of manipulation,” Breyer wrote.

Investors, including lead plaintiffs Steve Garrett, Nancy Price, John Garrett and Brian Belgrave, sued Musk in October 2022 claiming they suffered major losses when Musk deliberately made misleading statements to drive down the company’s stock, in hopes of backing out of the deal or renegotiating more favorably for himself.

On March 20, a San Francisco jury unanimously found that Musk’s tweets on May 13 and May 17, 2022, about the acquisition deal and spam bot accounts on the social media platform were materially false or misleading, but did not hold him liable for his comments on May 16. They also rejected the plaintiffs’ scheme claims against Musk.

In his order, Breyer found there was evidence that Musk’s May 13 tweet that the Twitter deal was on hold “pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users” caused an impact on share price.

The judge also found a “substantial evidence of falsity” in the May 13 tweet, as Musk did not tell his team or lawyers to stop working on the deal, citing testimony from one of Musk’s bankers that the May 13 tweet “surprised her and that Musk never put the deal on hold or directed his team to do so."

“That is sufficient evidence for the jury to find that the tweet was literally not true,” Breyer said.

The judge also rejected Musk’s arguments that the May 13 tweet was not material and that he believed his statements were true when he made them.

“A jury could conclude that Musk had a motive to get out of the existing deal and used bots as a pretext to do so. The evidence also showed that Musk was aware of the impact his tweets could have on the stock market,” Breyer said. “And his conduct behind the scenes, such as not actually telling Twitter or his team that the deal was on hold, supports a strong inference of knowledge — or at least deliberate recklessness — as to the falsity of his statements.”

However, the judge agreed there was not enough evidence to find Musk’s May 17 tweet caused the class to suffer a loss in the market. Must wrote that the acquisition deal was “based on Twitter’s SEC filings being accurate" and would not move forward until Twitter provided evidence of bot numbers under 5%.

“Without an expert opinion on price maintenance, plaintiffs lack substantial evidence to support a finding of loss causation with respect to the May 17 tweet,” Breyer wrote.

Breyer rejected Musk’s theories of a tainted jury pool, writing that Musk did not complain about any individual juror but rather “criticizes the pool and attributes bias to the jurors that made the final cut.”

Musk’s team had fretted that the jury pool expressed extreme dislike for the defendant, which Breyer dismissed at the time, describing Musk as a “well-known public figure akin to a United States president.”

Breyer also nixed Musk’s challenges over the completed verdict form, which included a notation of $4.20 in blue ink, unlike other notes in black ink. Musk had said the number is often negatively associated with him and argued it “proves the jury used its verdict to send a message.” The judge said the fact that the jury ruled in Musk’s favor on two claims “takes the wind out of Musk’s sails."

“It defies common sense that the jury could be so prejudiced against Musk yet absolve him of liability when they had the chance to send a message,” he said. Breyer noted the number is associated with marijuana and Musk has often referenced it jokingly.

Twitter ultimately sold to Musk for $54.20 per share, only closing after the company sued Musk to force the deal to go through. He later renamed the platform X.

Along with the verdict of liability, the jury opted to award damages per share of Twitter stock for each day of the class period, from May 13, 2022, to Oct. 3, 2022. They also awarded damages per Twitter stock option for each day of the class period.

Following the verdict, attorneys for the plaintiffs said estimated damages could top $2.6 billion.

Mark Molumphy of Cotchett, Pitre & McCarthy, an attorney for the investors, told Courthouse News that Monday’s ruling does not affect the damages calculation, which is based on the immediate market drop after Musk’s initial May 13 tweet.

Molumphy celebrated the ruling, calling it “one step closer to justice and accountability” for Twitter investors.

“This is a good day for Twitter investors and all others — seniors, pensioners, public retirement plans — who rely on truth and transparency in our public markets,” he said.

Representatives for Musk did not immediately respond to a request for comment.

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