Tesla slides 3.2% after Musk found liable for Twitter fraud
$2.6 billion potential verdict raises concerns of forced stock sales to cover damages
Tesla shares fell 3.2% in Thursday trading as investors grappled with a federal jury's finding that Elon Musk misled investors during his $44 billion acquisition of Twitter, creating potential liability of up to $2.6 billion that could force the chief executive to sell Tesla stock to cover damages.
The stock declined to $367.96, with volume surging to 77 million shares—well above the company's recent average—as the electric vehicle manufacturer's market valuation dropped by approximately $46 billion. The selloff accelerated throughout the session after a San Francisco jury delivered its verdict late Wednesday, marking the first time a jury has held Musk accountable for market-moving social media posts.
The case centered on two tweets Musk posted in May 2022 while pursuing his acquisition of Twitter, which he later renamed X. The most consequential post claimed the deal was "temporarily on hold" pending details on the prevalence of fake accounts on the platform. Twitter shares plunged nearly 10% following that statement, according to court documents reviewed by the Daily Journal.
Plaintiffs' attorneys estimate total damages could reach approximately $2.6 billion, with $2.1 billion allocated to investors who sold Twitter stock during the class period and an additional $500 million for option holders. The damages were calculated on a share-by-share basis depending on when investors sold their positions.
Mark C. Molumphy, a lead attorney for the plaintiffs, told the Daily Journal that the verdict represents "a significant victory for both Twitter investors and public markets," establishing that even powerful executives must adhere to securities laws when communicating publicly.
The legal overhang comes at a challenging time for Tesla, whose shares have already declined 26% this year. The company currently trades at $367.96, down from its 52-week high of $498.83, despite maintaining a market capitalization of $1.43 trillion. Analysts remain broadly bullish, with a consensus price target of $421.61 representing 14.5% upside from current levels, according to market data compiled March 20.
Investor concern centers on Musk's ability to fund the potential judgment without selling Tesla shares. The chief executive controls approximately 13% of Tesla's outstanding stock, a stake valued at roughly $185 billion at current prices. While the $2.6 billion potential liability represents a small fraction of his wealth, historical precedent shows Musk has previously sold Tesla shares to meet financial obligations, including a $20 million settlement with the Securities and Exchange Commission in 2018 over his "funding secured" tweets.
Musk's legal team at Quinn Emanuel Urquhart & Sullivan LLP signaled they will appeal the verdict, characterizing the decision as "a bump in the road" in a statement reported by CNBC. The attorneys noted that the jury rejected plaintiffs' claims that Musk's posts were part of a broader scheme to depress Twitter's stock price and cleared him of liability for one of three allegedly false statements.
The jury found no evidence that Musk intentionally manipulated Twitter's share price downward to renegotiate the acquisition at a lower price, narrowing the scope of liability compared to what plaintiffs had sought. However, the finding of securities fraud for misleading statements nonetheless carries significant financial and reputational consequences.
Analysts at Wedbush, led by Dan Ives, have previously noted that ongoing legal battles create "sustained overhang" for Tesla shares, even when the financial impact on Musk's personal wealth appears manageable. The Twitter verdict adds to existing legal pressures, including a Delaware court challenge to Musk's $56 billion compensation package that could ultimately reach the Supreme Court.
The verdict arrives as Tesla faces fundamental business challenges. Revenue declined 3.1% year-over-year in the most recent quarter, while earnings per share fell 60.6%. The company's price-to-earnings ratio of 358.77 remains elevated compared to traditional automakers, reflecting investor expectations for future growth despite current headwinds.
The appeal process could take 18 to 24 months to complete, according to legal experts, meaning the stock may face extended volatility as the case progresses. Until the appeal is resolved, Musk and his companies will operate under the uncertainty of a multi-billion dollar judgment hanging over the Tesla chief executive's personal finances.
For Tesla shareholders, the verdict underscores the concentration risk inherent in a company whose market value remains closely tied to the fortunes and decisions of a single executive. While the electric vehicle manufacturer has made strides in diversifying its leadership and operations, Thursday's selloff demonstrates that Musk's legal entanglements continue to move the stock.