Judge advances Twitter investor suit against Elon Musk to discovery

SAN FRANCISCO(CN) — A federal judge ruled to advance a class action by Twitter investors who claim Elon Musk manipulated Twitter stock leading up to his $44 billion purchase of the social media platform in 2022.

This past December, U.S. Senior District Judge Charles Breyer allowed the investor’s claims to advance. Breyer ruled then that Musk had made a series of statements that were false or misleading in the days following the announcement of his Twitter purchase.

The statements at issue include a tweet from May 13, 2022, where Musk said the Twitter deal was on hold, “pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.” Twitter stock declined over 9% on the day of the tweet; investors said they interpreted the tweet to mean that Twitter was hiding information.

Musk followed this up with a comment at a conference three days later that fake and spam accounts made up at least 20% of Twitter users at the time. When then-CEO Parag Agrawal commented that there was no way for external parties to calculate this information, Musk tweeted a poop emoji at Agrawal. Musk tweeted the next day that the deal would not be moving forward until Agrawal provided evidence of bot numbers under 5%.

In his December ruling, Breyer, a Bill Clinton appointee, found the tweets were misleading because Twitter did not have an obligation to provide Musk the details of bot accounts to close the sale of the platform, and that the statements made a material difference to Twitter’s investors since they relied on information about Twitter’s data in their investment decision-making.

After the ruling, Musk moved for a judgment on the pleadings, claiming his statements were not materially misleading to a reasonable investor in light of countervailing, contemporaneous statements — specifically, provisions in the Twitter merger agreement. Musk also argued that the plaintiffs have not sufficiently pleaded loss causation for any of the statements at issue.

Breyer, in a 6-page order Monday afternoon, found Musk had made the “exact same arguments that he made at the motion to dismiss stage and which this court explicitly considered and rejected. Just as Musk was allegedly bound by his waiver of due diligence after entering into the merger agreement, Musk is bound by this court’s decision that plaintiffs' case can move past the pleadings stage,” Breyer wrote.

Breyer’s ruling means the case can proceed to discovery.

Investors, including the lead plaintiffs Steve Garrett, Nancy Price, John Garrett and Brian Belgrave, first filed suit in October 2022. They claim they suffered major losses when Musk deliberately made misleading statements about the presence of spam bot accounts on Twitter to drive down the company’s stock, in hopes of backing out of the acquisition deal or renegotiating a more favorable deal.

Additionally, the investors claim Musk attempted to artificially lower Twitter’s stock price after he and Twitter entered into an agreement to acquire the platform, while also failing to disclose when his Twitter stake exceeded 5% or that he had initially been invited to join Twitter’s board.

Lawyers for Musk and the plaintiffs did not respond to requests for comment before deadline.

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