Class-Action Lawsuit Against Elon Musk Claiming He Cheated Twitter Shareholders Dismissed

A US District Judge dismissed a proposed class-action lawsuit against Elon Musk, which alleged he duped shareholders while acquiring Twitter. The judge threw out the proposed legal action even before it could become a lawsuit.

US District Judge Charles Breyer in San Francisco has effectively refused to even entertain a lawsuit that sought to bring Musk to trial. At the heart of the proposed lawsuit were claims about Elon Musk cheating Twitter's shareholders.

Elon Musk Took Twitter From Being A Publicly-Traded Company To A Private Enterprise

Elon Musk acquired Twitter back in October 2022. The acquisition was messy, with Musk initially agreeing, then refusing to acquire the social medial platform. Musk had claimed there were many bots or automated accounts on Twitter.

Elon Musk eventually signed the dotted line to acquire Twitter for $44 billion (approx. ₹3,61,687 Crores). However, before he became the sole owner of the microblogging network, Musk had become its largest shareholder by acquiring 9.2 percent of Twitter shares.

Plaintiff William Heresniak sued Elon Musk on May 25, 2022, one month after Twitter accepted Musk's $54.20 (approx. ₹4,488) per share buyout offer. The acquisition deal finally closed on October 27, 2022.

The lawsuit alleged Musk unduly benefitted from the deal as he was a prior owner of Twitter shares. Moreover, he and select board members gained much more than ordinary shareholders.

Elon Musk Didn't Cheat Shareholders Or Illegal Help Twitter's Select Board Members

While dismissing the case, US District Judge Charles Breyer said the plaintiff lacked standing to sue because he challenged "wrongs associated with" Musk's buyout, not the fairness of the buyout itself.

Breyer said Heresniak did not show harm from Musk's belated disclosure of a 9.2 percent Twitter stake, which the suit alleged let him buy more shares at lower prices before the buyout was announced, or from the closing's taking place 1 and a 1/2 months later than planned.

The judge also claimed he found no proof proving Musk helped two friends then on Twitter's board, co-founder Jack Dorsey and Silver Lake private equity firm managing partner Egon Durban, breach their fiduciary duties. The lawsuit alleged the duo favored their own and Musk's interests over ordinary shareholders.

Breyer said letting Dorsey roll over his approximately $1 billion (approx. ₹8,210 Crores) of Twitter shares into an equity stake in the new company merely reduced how much Musk had to pay at closing, and did not "improperly divert" money from other shareholders.

Simply put, the judge observed that Twitter was acquired at prevalent market rates. Moreover, Dorsey has essentially rolled over his investment. This "money" was never "on the table" as the shares were owned by a shareholder, just like other shareholders.