Elon Musk’s Twitter Acquisition: Securities Fraud Regulation on Social Media

by Stella Brocker, Associate Member, University of Cincinnati Law Review Vol. 94

I. Introduction

In October 2022, Elon Musk completed his $44 billion acquisition of Twitter, a platform he would later rebrand as “X,” but the road to closing that deal was anything but smooth.¹ Negotiations initially appeared to be moving along steadily until May 13, 2022, when Musk tweeted that the deal was “on hold,” citing concerns that Twitter had underestimated the number of spam accounts on its platform.² A follow-up tweet on May 16 reinforced those concerns, with Musk stating that he could not move forward on the deal until he received further information about the number of spam accounts.³ The statement rattled Twitter shareholders who feared that Musk was pulling out of the deal, triggering a massive 9% drop in Twitter’s stock price.⁴

Shareholders responded by suing Musk for securities fraud, alleging that he had conspired to bring down Twitter’s stock prices so that he could get a cheaper deal.⁵ Securities are various types of investments, including stocks, bonds, notes, investment contracts, and more.⁶ Securities fraud occurs when someone commits fraud “in connection with the purchase or sale of a security.”⁷ On March 20, 2026, the jury found that Musk had committed securities fraud because his tweets had misled investors.⁸ However, the jury also found that Musk had not “schemed” to manipulate Twitter stock prices.⁹

This article examines whether Musk’s actions legally constituted securities fraud and explores existing securities fraud regulations. Part II provides background on the events leading up to Musk’s Twitter acquisition, existing securities fraud regulations, and the lawsuit brought by Twitter shareholders. Part III discusses securities fraud on social media, particularly in the context of individuals with a large social media following. Finally, part IV concludes that the securities fraud regulations should be modified to allow for lower standards of culpability in order to hold wealthy and powerful actors accountable for negligent behavior.

II. Background

Musk’s acquisition of Twitter was a saga of angry tweets and twists and turns. These events formed the backdrop for the shareholder lawsuit that ultimately ended with the jury finding Musk liable for securities fraud.¹⁰ This section details the events leading up to the acquisition, explains the relevant securities fraud regulations, and the litigation that followed.

A. Factual Background

Musk’s interest in Twitter began in late January 2022 when he first began acquiring shares in the company.¹¹ By March 14, he had become Twitter’s largest shareholder, with a 9.2% stake in the company.¹² On April 4, Musk publicly disclosed his stake in Twitter through a filing with the Securities and Exchange Commission (“SEC”), leading to Twitter’s stock rising more than 27% in response.¹³ His massive following of over 80 million users, along with his reputation as a prolific Twitter user, fueled speculation that Musk might bid to take over the platform.¹⁴

The following day, on April 5, Twitter CEO Parag Agrawal announced on Twitter that Musk was officially appointed to the company’s board of directors.¹⁵ However, just days later, on April 11, Agrawal announced that Musk would no longer be joining the board, without disclosing why.¹⁶ On April 14, Musk offered to purchase Twitter at $54.20 per share, which amounted to approximately $44 billion.¹⁷ In a public securities filing, he stated he wanted to transform Twitter into a platform for global free speech, which he described as “imperative for a functioning democracy.”¹⁸

Twitter did not accept the offer without resistance. On April 15, Twitter responded by adopting a “poison pill” strategy, a defensive mechanism that allowed current stockholders to buy shares at a discounted rate, thereby diluting the value of Musk’s stake and simultaneously driving up the overall cost of the acquisition.¹⁹ However, Musk remained persistent in his efforts and announced on April 21 that he had secured sufficient funding to finance the potential Twitter acquisition.²⁰ Four days later, on April 25, Twitter announced that it had formally accepted Musk’s offer to purchase the company for $44 billion.²¹

Over the coming days, Musk sold roughly $8.5 billion in Tesla shares and secured over $7 billion in external funding to fulfill his end of the deal.²² Things appeared to be moving along smoothly until May 13, when Musk tweeted that the “Twitter deal [was] temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” along with a link to a Reuters article that referenced a Twitter securities filing citing that estimate.²³ Despite this tweet, Musk maintained that he was “still committed” to the acquisition, and the market reacted sharply.²⁴ Twitter’s stock plummeted by more than 9% as investors grew wary of whether Musk would follow through on the deal.²⁵

On May 16, Agrawal took to Twitter to address the controversy directly, posting a thread detailing the company’s policy on spam accounts and acknowledging that combating spam was an ongoing challenge, adding that the company welcomed continued dialogue with Musk.²⁶ In response, Musk tweeted the “poop emoji,” followed by a subsequent tweet asking, “So how do advertisers know what they’re getting for their money? This is fundamental to the financial health of Twitter.”²⁷ The following day, May 17, Musk tweeted that he was unable to move forward until the issue of quantifying spam accounts was resolved.²⁸

On May 26, Twitter shareholders filed a class-action lawsuit against Musk, alleging that he manipulated the company’s stock prices during the acquisition process, thereby violating SEC Rule 10b-5.²⁹ By July 8, Musk had formally moved to terminate the deal, citing the prevalence of spam accounts on Twitter as his justification.³⁰ Twitter’s legal team responded that Musk “knowingly, intentionally, willfully, and materially” breached the deal, and thus his effort to terminate it was invalid.³¹ Twitter then sued Musk on July 12 in Delaware’s Court of Chancery, where the company is incorporated, attempting to force Musk to complete the deal on the original agreed-upon terms.³² Musk countersued on July 29, claiming that Twitter deliberately misled him about the true number of spam accounts on the platform.³³

A Delaware judge rejected Musk’s attempts to delay the proceedings and scheduled the trial to take place in October.³⁴ Facing an unfavorable legal position, Musk reversed course on October 4 and offered to complete the deal on its original terms.³⁵ On October 28, the day before the trial was set to commence, Musk closed the deal with Twitter.³⁶ After closing the deal, he immediately fired some of Twitter’s top executives, including Agrawal.³⁷ In July 2023, Musk renamed the platform “X,” as it is known today.³⁸

B. Securities Fraud

There are several SEC regulations in place to address securities fraud. Section 17(a) of the 1933 Securities Act and SEC Rule 10b-5 are two of the main provisions used and are overall very similar, with a few key differences.³⁹ Section 17(a) makes it unlawful for any person to misrepresent a material fact in the offer or sale of securities.⁴⁰ Rule 10b-5 goes a step further and makes it unlawful for any person to misrepresent a material fact in the purchase, as well as the sale, of securities.⁴¹ A fact is material if there is a substantial likelihood that a shareholder would consider it important when making decisions.⁴²

This definition encompasses more than pure statements of fact. In Virginia Bankshares v. Sandberg, the Supreme Court clarified that opinions can also be actionable under Rule 10b-5.⁴³ The Court held that a knowingly false statement of reason or opinion can be actionable under securities law, even if the speaker does not explain why the statement is true.⁴⁴ In Sandberg, the company’s directors represented to shareholders that the merger price exceeded the value of their shares, while internally believing that the value was no more than fair.⁴⁵ Because the directors expressed a belief they did not actually hold, their statements were actionable, despite being framed as opinions.⁴⁶ The Court’s decision to extend liability serves an important purpose in maintaining public confidence in the integrity of securities markets—a central goal of federal securities law.⁴⁷

Another key difference between Section 17(a) and Rule 10b-5 is that Section 17(a) allows for claims based upon negligent conduct, whereas Rule 10b-5 requires that the defendant’s misrepresentation of a material fact was done knowingly, otherwise known as scienter.⁴⁸ Therefore, there is a higher standard of proof in Rule 10b-5 claims.⁴⁹ This allows Section 17(a) to apply to a broader range of conduct; however, Section 17(a) does not allow for private actions to be brought against defendants, so its application is more narrow than Rule 10b-5.⁵⁰

C. The Lawsuit Against Musk

Musk’s tweets on May 13 and May 17, suggesting he was backing out of the deal during his 2022 Twitter acquisition, became the foundation of a class action lawsuit filed by Twitter shareholders, alleging securities fraud under Rule 10b-5.⁵¹ The shareholders alleged that he was intentionally attacking Twitter to drive down its stock price so he could purchase the company at a lower price.⁵² After Musk’s tweets, Twitter shares dropped at varying rates and remained unstable for months, a pattern the shareholders asserted was an intentional scheme to defraud investors and negotiate a better deal.⁵³ Musk claimed that his complaints about Twitter were legitimate and not fraudulent in any way, but this determination was ultimately left up to the jury.⁵⁴

Throughout the trial, Musk maintained that he did not anticipate Twitter’s stock prices dropping as a result of his tweets.⁵⁵ Additionally, Musk maintained that Twitter had lied to him about the number of bots on its platform.⁵⁶ The shareholder’s lawyers argued that Musk “knew exactly what he was doing” as he “mounted a public spectacle to trash the company, to drive the stock price down, to renegotiate or escape the deal.”⁵⁷ To prevail on their claims, the shareholders’ lawyers had the burden of proving that Musk knowingly tried to manipulate Twitter’s stock prices through these tweets.⁵⁸

After four days of deliberations, the jury returned a unanimous verdict on March 20, 2026, finding that Musk’s May 13 and May 17 tweets were materially false or misleading and constituted securities fraud.⁵⁹ The jury did not go as far as the shareholders had hoped, however, declining to find that Musk engaged in a long-term scheme to drive down Twitter stock prices as shareholders alleged.⁶⁰ Given the finding that Musk misled the shareholders, the jury ordered Musk to pay between three and eight dollars per share per day in damages, amounting to approximately $2.1 billion.⁶¹ That figure, while substantial, represents only a small fraction of Musk’s current estimated net worth of $814 billion.⁶² The shareholders’ legal team viewed the verdict as an important victory, arguing it sends a clear message that wealth and power do not exempt anyone from securities law.⁶³ Musk’s attorneys indicated that he plans to appeal the decision, seeking a total victory.⁶⁴

III. Discussion

In the end, the shareholders prevailed on their core claim, with the jury finding that Musk did, in fact, commit securities fraud.⁶⁵ This section discusses the current securities legislation and argues that it should be modified to allow for lower standards of culpability due to the growth of social media and “influencers” with vast followings. Next, this section discusses the key policy considerations that support this conclusion.

A. Rule 10b-5 Should be Modified to Allow for Actions Based Upon Negligence

Social media has become a main source of investment information, while simultaneously introducing new ways to commit securities fraud with more ease than ever.⁶⁶ By posting misleading information on social media, fraudsters can manipulate stock prices which in turn harms investors.⁶⁷ This is particularly significant for individuals with large followings, sometimes known as influencers, including Musk. Throughout this trial, Musk maintained that he had not anticipated Twitter’s stock prices dropping as a result of his tweets.⁶⁸ This fact was of particular significance during this trial, because Rule 10b-5 requires a showing of scienter.⁶⁹ While Section 17(a) allows for claims brought for negligent behavior, it does not allow for private rights of action, so the Twitter shareholders were limited to bringing a Rule 10b-5 claim which requires a showing that Musk made a knowing material misrepresentation.⁷⁰ However, this determination does not advance the central goal of securities law, namely maintaining public confidence in the integrity of securities markets.⁷¹ If an individual posts on social media in a way that causes the market to rise or fall, whether or not they intended to do so matters less than the resulting harm and overall erosion in trust in the market.

Requiring a showing of scienter allows people with large followings to avoid culpability for negligent behavior. As social media becomes more and more prevalent, this has concerning implications. Through nothing more than a couple of tweets, Musk sent Twitter stock prices down a whopping 9%.⁷² Although the jury did ultimately find that he had made a knowing material misrepresentation, there are plenty of conceivable instances where a similar market dip could be seen through negligent behavior. In fact, Musk still maintains that he did not knowingly cause Twitter stock to decline, and if the jury had agreed with him, he would have avoided any culpability for the harms he caused to investors.⁷³

Having a large online following allows an individual to have a great deal of influence, and this influence should not go unchecked, especially in the context of securities where public trust in the market is of vital importance. In order to safeguard this trust, Rule 10b-5 should be modified to allow for claims based upon negligent conduct, similar to Section 17(a). If an individual makes a material misrepresentation that leads to widespread harm, they should not be exempt from all accountability to those that their actions harmed without a showing of scienter. This behavior is negligent and causes real impacts on investors, and there should be a way to mitigate these harms.

B. Additional Policy Considerations

There are many compelling policy justifications that support this conclusion. Musk was ordered to pay approximately $2.1 billion in damages to shareholders harmed by his tweets, representing less than 0.003% of his net worth.⁷⁴ For Musk, that sum is financially inconsequential, but it is of much greater significance for the average shareholder who likely cannot access billions of dollars at the drop of a hat.⁷⁵ In the absence of this verdict, the individuals harmed would have no redress for the harms they experienced. The damages will likely make a real difference to those individuals, whereas Musk will not experience any noticeable effect on his financial well-being. Additionally, as the shareholders’ attorney expressed, this ruling makes clear that no matter how wealthy one is, they must still abide by the law.⁷⁶ That principle matters most in cases involving the wealthy and well-connected, who have far greater ability to cause harm than the average person and an equally greater ability to avoid accountability.

Musk’s purchase of Twitter and subsequent rebrand to X illustrate just how much influence he has—or at least that he can buy—since the amount of money required to completely take over and remake an incredibly popular social media application is beyond what many people can even conceptualize.⁷⁷ It is imperative that this kind of power does not go unchecked, and the jury’s verdict in this case reflects precisely that understanding. The SEC also sued Musk in January 2025, alleging that he failed to properly disclose his stake in Twitter, thereby allowing him to purchase shares at discounted prices.⁷⁸ With Musk’s acquisition tactics previously deemed fraudulent, this case may also reach a similar conclusion and further strengthen the policy justification of holding the rich and powerful accountable.

Although Musk was ultimately found to be at least partially liable in this case, that finding hinged upon whether he behaved knowingly due to the standards of Rule 10b-5. This creates a reality where individuals with large social media followings can behave negligently, and any individuals who they harm cannot seek any sort of true accountability or redress from the very actor that harmed them. Modifying this rule to allow for actions based upon negligent conduct would address this very issue and force the rich and powerful to directly compensate those they harmed.

IV. Conclusion

After a long winding road, Elon Musk eventually purchased Twitter for around $44 billion.⁷⁹ However, during negotiations, he tweeted that the deal was “on hold” and later said he was “unable to move forward” due to issues with the number of spam accounts on Twitter.⁸⁰ This prompted a lawsuit by Twitter shareholders, who alleged that Musk was willfully misleading investors in order to drive down stock prices and negotiate a cheaper deal for himself which is unlawful under SEC Rule 10b-5.⁸¹ Ultimately, the shareholders prevailed on their core claim, with a jury ruling that Musk had committed securities fraud with these tweets.⁸² However, this ruling was dependent upon whether Musk knowingly misled investors, which is difficult to prove. Rule 10b-5 requires a showing of scienter, which allows those with a large social media following to behave negligently and then skirt accountability to those whom their actions have directly harmed.⁸³ This rule should be modified to allow claims to be brought for negligent behavior to address this issue. Additionally, this would allow shareholders to be compensated for the harms they have suffered while having minimal impact on the financial interests of the wealthy actors involved. Ultimately, Rule 10b-5 should be modified to allow for private securities fraud actions based upon negligence to ensure that the rich and powerful are not beyond the reach of the law.

Cover Photo by Martin Bjork on Unsplash

Stella Brocker

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