By Jonathan Stempel
July 6 (Reuters) – A federal judge on Monday rejected Elon Musk’s bid to void a jury verdict finding that the world’s richest person defrauded Twitter investors by trying to drive down the social media company’s stock price after agreeing to a $44 billion takeover.
U.S. District Judge Charles Breyer in San Francisco also denied Musk’s motion to decertify the class of investors, and granted the investors’ motion for prejudgment interest. The judge did find Musk not liable for one of his challenged tweets.
“Even if the speaker has a change of heart or a momentary regret about a transaction, such qualms do not justify lying to the investing public,” Breyer wrote.
Investors accused Musk of falsely suggesting that Twitter was overrun by fake and spam accounts, known as bots, to force the company to renegotiate his offer or let him back out. They said it caused losses when they sold shares at depressed prices.
A lawyer for the investors estimated that Musk could owe $2.6 billion in damages following the March 20 verdict.
Musk ultimately bought Twitter in October 2022 and changed its name to X. It is now part of his rocket and satellite company SpaceX.
Lawyers for Musk did not immediately respond to requests for comment.
Mark Molumphy, a lawyer for the investors, called it “a very good day” for investors in public markets, after jurors “rejected Musk’s effort to game that system.”
Musk often chooses to battle shareholders in court rather than settle. He also faces a lawsuit in Manhattan claiming he defrauded Twitter investors by waiting too long to disclose his initial investment, letting him buy cheaply.
‘SUBSTANTIAL EVIDENCE OF FALSITY’
Jurors found Musk liable for May 13 and May 17, 2022, tweets about Twitter, less than one month after he agreed to a takeover.
Musk’s first tweet said the purchase was “temporarily on hold” pending details on whether bots represented less than 5% of users. Investors said it caused Twitter’s share price to fall 18% over two trading days.
The second tweet said the percentage of bots could be much higher than 20%, and the purchase “cannot move forward” until Twitter’s chief executive proved it was under 5%.
Breyer found “substantial evidence of falsity” in the May 13 tweet, and said “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 judge, however, said the lack of market reaction to the May 17 tweet meant Musk was not liable for it.
JUDGE REJECTS ‘420’ CLAIM
Breyer also rejected Musk’s claim that jurors were “mocking” him and using the verdict to “send a message” by highlighting the figure “$4.20” in bright blue on the verdict form.
The number 420 is associated with marijuana culture, and Musk has often used it in interviews, tweets and in business activities.
Musk’s takeover of Twitter valued the company at $54.20 per share. In another example, Musk’s 2018 tweet that he had “funding secured” to take his electric car company Tesla private for $420 per share prompted a U.S. Securities and Exchange Commission civil fraud lawsuit, which he later settled.
The judge, however, said it “defies common sense” that jurors were biased against Musk, noting that they deliberated over nearly four days and sided with Musk on some claims. Breyer also found no evidence that 420 was negatively associated with Musk.
“To the contrary, 420 is a reference to cannabis/marijuana,” Breyer wrote. “One need only walk around San Francisco on April 20 to observe how prevalent the celebration can be.”
(Reporting by Jonathan Stempel in New York, Editing by Franklin Paul and Bill Berkrot)
Comments