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Business

FTX’s Sam Bankman-Fried Charged With Criminal Fraud, Conspiracy

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FTX founder

Sam Bankman-Fried

oversaw one of the biggest financial frauds in American history, a top federal prosecutor said in charging that the former chief executive stole billions of dollars from the crypto exchange’s customers while misleading investors and lenders.

An indictment by the U.S. attorney’s office for the Southern District of New York, unsealed Tuesday, charges Mr. Bankman-Fried with eight counts of fraud. Prosecutors allege that he took FTX.com customers’ money to pay the expenses and debts of Alameda Research, an affiliated trading firm. Mr. Bankman-Fried is charged as well with conspiring to defraud the U.S. and violate campaign-finance rules by making illegal political contributions.

Damian Williams,

the U.S. attorney for the Southern District of New York, said he authorized the charges against Mr. Bankman-Fried last Wednesday and a grand jury voted on the indictment Friday.

“This investigation is very much ongoing, and it is moving very quickly,” Mr. Williams said at a press conference in Manhattan on Tuesday. “While this is our first public announcement, it will not be our last.”

John J. Ray III, the new chief executive of FTX, testified in front of a House committee Tuesday on the collapse of the crypto exchange. Photo: Nathan Howard/Getty Images

Separately, John J. Ray III, the new chief executive of FTX, said at a congressional hearing Tuesday that FTX incurred losses in excess of $7 billion. Mr. Ray, who oversaw the Enron Corp. bankruptcy early in the 2000s decade, said funds were taken from FTX and Alameda, an affiliated trading firm that incurred trading losses. 

Mr. Ray described Enron as having been brought down by sophisticated people whose machinations aimed to keep transactions secret. FTX presents as “old-fashioned embezzlement,” Mr. Ray said. “It’s taking money from customers and using it for your own purpose.”

Also Tuesday, the Securities and Exchange Commission alleged in a civil lawsuit that Mr. Bankman-Fried diverted customer funds from the start of FTX to support Alameda and to make venture investments, real-estate purchases and political donations. The Commodity Futures Trading Commission filed a lawsuit Tuesday linking his allegedly fraudulent conduct at Alameda and FTX to markets that the CFTC regulates.  

“

Sam Bankman-Fried

built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” SEC Chair

Gary Gensler

said.

The charges are the latest twist in a saga that has rattled the world of cryptocurrencies, a largely unregulated market that boomed during the pandemic but has been hammered this year by rising interest rates and the failure of several significant industry players. 

FTX, one of the largest crypto exchanges in the world, filed for bankruptcy last month after the firm ran out of cash and a merger with rival Binance collapsed. The firm’s failure marked a sudden fall from grace for Mr. Bankman-Fried, who portrayed FTX as a safer crypto exchange to use and cast himself as an ally of regulation.

In interviews since the filing, Mr. Bankman-Fried said he bore responsibility for FTX’s collapse but denied he committed any fraud.

Mark Cohen,

a lawyer for Mr. Bankman-Fried, said Tuesday that his client “is reviewing the charges with his legal team and considering all of his legal options.”

Mr. Bankman-Fried, 30 years old, was arrested Monday in the Bahamas. He appeared in court Tuesday in Nassau. He was denied bail and has been remanded to jail until Feb. 8, according to a person familiar with the matter.

A U.S. court official said that while the case had been assigned to a federal judge in Manhattan, there was no timing yet for Mr. Bankman-Fried’s extradition.

The tales of Mr. Bankman-Fried’s alleged misdeeds resonated with crypto customers around the world, even those who haven’t suffered significant losses as various firms by turns suspended withdrawals and collapsed.

Vasco Tagachi, a 42-year-old Portuguese-Sri Lankan trader based in China, said he felt a sigh of relief after learning of Mr. Bankman-Fried’s arrest. He said he had $57,423 in an FTX account this fall but was able to withdraw almost all of it just before the firm stopped honoring withdrawal requests.

“I had a little bit of tears in my eyes hearing that,” he said.

Prosecutors allege that from 2019 through November 2022, Mr. Bankman-Fried conspired with unnamed individuals to defraud customers and lenders. He provided false and misleading information to lenders on the financial condition of Alameda, according to the indictment.  

Sam Bankman-Fried was arrested in the Bahamas on Monday, a day before he was expected to testify on the sudden collapse of FTX before the House Committee on Financial Services. Illustration: Jacob Reynolds

While the 14-page indictment was light on detailed allegations, it says that on Sept. 18, 2022, Mr. Bankman-Fried caused an email to be sent to an FTX investor in New York that contained false information about FTX’s financial condition. In June 2022, the indictment says, Mr. Bankman-Fried and others misappropriated FTX.com customer deposits to satisfy the loan obligations of Alameda.

Mr. Bankman-Fried is also accused of defrauding the Federal Election Commission starting in 2020 by conspiring with others to make illegal contributions to candidates and political committees in the names of other people. 

He and his associates contributed more than $70 million to election campaigns in recent years, The Wall Street Journal previously reported. He personally made $40 million in donations ahead of the 2022 midterm elections, most of which went to Democrats and liberal-leaning groups.

Mr. Ray, the FTX CEO, said FTX is investigating whether any loans taken by FTX executives were improperly used for campaign contributions.

Mr. Ray added that tracing fund flows from FTX to executives and third parties was difficult because of the lack of a paper trail for many corporate transactions at FTX.

“We’re dealing with a paperless bankruptcy,” he said. “It makes it very difficult to trace and track assets.”

The CFTC’s complaint contains a detailed discussion of events at Alameda and FTX and argues that the agency, generally less visible to the public than the SEC, also has jurisdiction over the case. While the CFTC regulates U.S. derivatives markets, it can go after fraud that affects some commodity markets.

Besides giving Alameda access to its customer deposits, FTX granted the crypto hedge fund controlled by Mr. Bankman-Fried a series of trading-execution privileges that provided it an edge against other traders on the platform, the CFTC lawsuit alleges.

The CFTC said that while institutional customers had their orders routed through the FTX system, Alameda was able “to bypass certain portions of the system and gain faster access.” It resulted in Alameda’s orders being received by FTX several milliseconds faster than those of other institutional clients.

The lawsuit also alleges that Alameda wasn’t subject to certain automated verification processes, including on whether it had available funds before executing a transaction, giving it further advantage on the speed of its trades.

The edge wasn’t enough to keep Mr. Bankman-Fried from thinking about shutting down Alameda in September, according to the CFTC complaint.

In a document titled “We came, we saw, we researched,” Mr. Bankman-Fried laid out reasons for shutting down Alameda, according to the CFTC lawsuit. Chief among them: Alameda wasn’t making enough money to justify its existence, he wrote.

The CFTC said the statements contradicted what Mr. Bankman-Fried and Alameda were saying publicly at the time.

Tuesday’s congressional hearing was the first public appearance for Mr. Ray on FTX’s bankruptcy. Mr. Bankman-Fried had been scheduled to appear virtually at the same hearing, before he was arrested in the Bahamas at the request of the U.S. government. Bahamian police have said that they would keep him in custody and that they are awaiting an extradition order from U.S. authorities.

“The operation of Alameda really depended, based on the way it was operated, on the use of customer funds,” Mr. Ray said, responding to questions from members of Congress at the hearing. “There were virtually no internal controls…whatsoever.”

He described numerous loans totaling billions of dollars taken out by Mr. Bankman-Fried from Alameda. 

“We have no information at this time as to what purpose or use of those funds were,” Mr. Ray added. He said Mr. Bankman-Fried had signed as the issuer and recipient for some of the loans.

Mr. Ray pushed back against recent statements made by Mr. Bankman-Fried that he had little to no involvement in the management of Alameda after passing control of the company to

Caroline Ellison

and

Sam Trabucco,

as well as Mr. Bankman-Fried’s statements that customer funds were passed to Alameda because of an accounting error.

“I don’t find those statements to be credible,” Mr. Ray said.

The Justice Department’s indictment of Mr. Bankman-Fried includes an array of charges with few supporting details, a tactic that could give federal prosecutors flexibility in navigating the rules involving extradition.

The charges against Mr. Bankman-Fried run the gamut from wire fraud to securities fraud conspiracy to conspiring to launder money and conspiring to break campaign-finance laws.

The statutes charged, with the exception of the campaign-finance offense, are enormously broad, said Rebecca Mermelstein, a former federal prosecutor who is now at O’Melveny & Myers LLP.

“By not being superspecific, you protect yourself later against an argument that charges relating to different criminal conduct are being added,” she said.

The arrest of Mr. Bankman-Fried is the latest case to highlight prosecutors’ push to bring white-collar cases to justice faster. 

Deputy U.S. Attorney General Lisa Monaco said in a September speech that making prosecutors and companies feel that they were “on the clock” in these cases was a key priority for the department. 

FTX founder Sam Bankman-Fried sat down with The Wall Street Journal to discuss what happened to the billions of dollars deposited by the exchange’s customers. Photo: Kenny Wassus/The Wall Street Journal

“We need to do more and move faster,” she said. “In individual prosecutions, speed is of the essence.”

Former federal prosecutors say that high-profile financial cases with lots of victims can increase the pressure on authorities to bring cases more quickly.

“Appearances matter when it comes to criminal justice,” said Mark Chutkow, a former federal prosecutor who is currently head of government investigations and corporate compliance at Dykema Gossett PLLC.  

If Mr. Bankman-Fried remains in the Bahamas while the details of his potential extradition to the U.S. are worked out, there is only one prison there: the Bahamas Department of Correctional Services, commonly known as Fox Hill Prison. 

Prison inmates reported removing human waste by buckets and developing bed sores from lying on the bare ground, according to a 2021 human-rights report on the Bahamas by the U.S. State Department. Cells were infested with rats, maggots and insects, the report said. 

Inmates are supposed to get an hour every day outside for exercise. Because of staff shortages and overcrowding, there are times when inmates will only get 30 minutes a week, said Romona Farquharson, an attorney in the Bahamas. 

The prison has different sections that separate those serving terms for violent crimes, for instance, from those who aren’t. Because of overcrowding, there have been instances in which inmates awaiting trial for minor crimes have been sent to the maximum-security facility, said Ms. Farquharson.

“I think they’ve got to be careful not to have him in really rough areas in the prison,” she said. 

—Angel Au-Yeung, Ben Foldy and Hannah Miao contributed to this article.

Write to Corinne Ramey at corinne.ramey@wsj.com, James Fanelli at james.fanelli@wsj.com, Dave Michaels at dave.michaels@wsj.com, Alexander Saeedy at alexander.saeedy@wsj.com and Vicky Ge Huang at vicky.huang@wsj.com

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Technology

FTC’s Tussle With Microsoft Puts Spotlight on Cloud Gaming

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Cloud gaming is an emerging technology that allows people to stream videogames to nearly any internet-connected device, similar to how movies and shows are viewed on

Netflix,

Hulu and other streaming platforms.

The business model being developed alongside cloud gaming is a subscription service, where consumers get to play a catalog of games for a flat monthly or annual fee. With cloud gaming, players can avoid downloading games to their devices, which takes up memory, and they don’t need to invest in hardware such as a console or high-end computer. 

The FTC and videogame industry participants anticipate cloud gaming will become a much larger part of the market in years to come. With its lawsuit, the FTC says it is protecting the videogame-distribution market—as it is today and how it is expected to evolve—from being dominated by a few companies.

Microsoft is an early leader in cloud gaming with its Xbox Game Pass subscription service. The company’s $75 billion deal for Activision would bolster its content library, adding several blockbuster franchises including “Call of Duty,” “World of Warcraft” and “Candy Crush Saga.”

Microsoft, which has pledged to fight the FTC’s suit, has said it is an underdog in the existing console market, with Xbox’s position trailing

Sony Group Corp.’s

PlayStation and

Nintendo Co.

’s Switch. The company doesn’t disclose Xbox sales by volume.

Shoppers are seeing more out-of-stock messages than ever, but inventory tracking websites like HotStock and Zoolert are giving people a better chance of finding the hot-ticket products they’re looking for. Here’s how those websites work. Illustration: Sebastian Vega

The technology giant has also said that it has no meaningful presence in mobile, the biggest corner of the overall videogame industry by revenue.

Apple Inc.

and

Alphabet Inc.’s

Google, makers of the predominant smartphone operating systems, play a critical role in how people access mobile games, and they take a cut of developers’ in-app and subscription sales.

Xbox Game Pass, which Microsoft launched in 2017, offers a library of hundreds of games for subscribers to play starting at $9.99 a month. The basic plan allows subscribers to download individual games on their Xbox or PC to play whenever they want. For $14.99 a month, subscribers can play some of those games via the cloud, all part of Microsoft’s ambitions to build a “Netflix of gaming.” The company in January said Game Pass had 25 million subscribers.

Global consumer spending on cloud-gaming services and games streamed via the cloud will reach a combined $2.4 billion by the end of this year, according to an estimate from Newzoo BV. That is a tiny fraction—1.4%—of the $184.4 billion in overall spending on videogame software.

Sony, which has aggressively lobbied governments around the world to oppose the Microsoft-Activision tie-up, and others have attempted to grow their own cloud-gaming subscription services. Microsoft, for now, is the dominant player, accounting for 60% of the overall cloud-gaming business last year, according to an estimate from research firm Omdia.

Microsoft is an early leader in cloud gaming with its Xbox Game Pass subscription service.



Photo:

etienne laurent/Shutterstock

The FTC appears concerned that it “can’t see the unintended consequences even just a few years down the road for an acquisition like this,” said

Paul Swanson,

a Denver-based antitrust lawyer at Holland & Hart LLP. “What they’re saying here is we’re going to err on the side of preserving as many independent competitors as we can.”

Over the past decade, Microsoft has poured billions into its cloud operations primarily for selling software and infrastructure for enterprise customers. It is now building out a separate cloud infrastructure to power its videogaming ambitions, which have been under development since it launched its first Xbox console in 2001.

Cloud gaming hasn’t been an easy business to navigate. The technology is difficult for companies to execute smoothly because games need to support multiple players with minimal delay regardless of where players are located. Earlier this year, Google shut down its game-streaming service, Stadia, after struggling to gain traction with users.

Microsoft remains heavily invested in its Xbox hardware, but cloud gaming gives it an opportunity to reach more gamers. It wants to build its own mobile app store, a move it says would create more competition in mobile videogames, not less. The Redmond, Wash., company has argued that Apple and Google’s app marketplaces have policies that pose technical and financial barriers to its goals.

Representatives for Apple and Google didn’t respond to requests for comment. Apple has said that it doesn’t prevent cloud-gaming apps from appearing in the App Store and that it isn’t trying to block their emergence. 

Industry researcher and academic

Joost van Dreunen

said Microsoft’s mobile move would likely benefit the videogame ecosystem by diminishing Apple and Google’s grip.

Microsoft has said it is an underdog in the console market, with Xbox trailing consoles such as Nintendo’s Switch.



Photo:

Guillaume Payen/Zuma Press

“It breaks down the so-called walled-garden strategy that has dominated the game industry for 20 years,” he said.

Since Microsoft announced its deal for Activision, which it values at nearly $69 billion after adjusting for the developers’ net cash, some videogame players have been concerned about what it means for industry competition. 

Steve Schweitzer of State College, Pa., is worried that Microsoft will raise the price of Game Pass over time. He said that it is affordable now but that in a few years, if Microsoft becomes more dominant, it could bump up the price and start cutting back on quality. Mr. Schweitzer, 55 years old, said he remembers back in the 1990s when Microsoft was able to use its market power to capture market share in the browser wars. “I’ve seen this game before,” he said.

Before its lawsuit, the FTC had been reviewing the deal for months. Regulators in other jurisdictions, including the European Union and the United Kingdom, are doing the same. The company has gained approval for the deal in smaller markets such as Brazil and Saudi Arabia.

Write to Sarah E. Needleman at sarah.needleman@wsj.com and Aaron Tilley at aaron.tilley@wsj.com

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Technology

FTC’s Move to Block Microsoft’s Deal for Activision Blizzard Came Despite Charm Offensive

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Microsoft Corp.

MSFT -0.80%

had been working for close to a year to calm regulators’ concerns about its acquisition of videogame developer

Activision Blizzard Inc.,

ATVI 0.54%

but the Federal Trade Commission’s suit to block the deal raised doubts about the company’s pledge not to shut out rivals. 

The FTC this week took one of its biggest swings ever against a big technology company and sued to stop the planned $75 billion acquisition, setting the stage for a court challenge over a deal the antitrust agency said would harm competition.

The commission’s complaint said the deal is illegal because it would give Microsoft the ability to control how consumers beyond users of its own Xbox consoles and subscription services access Activision’s games. Microsoft has repeatedly said it wouldn’t engage in such actions. The FTC’s complaint accused Microsoft of reneging on a similar pledge to a European regulator in the past, a criticism the company disputes.

Earlier this week, as the possibility of a lawsuit grew, Microsoft touted the deal’s benefits to gamers through an op-ed article in The Wall Street Journal and announced an agreement to give a competitor access to one of Activision’s most popular games. The FTC filed its lawsuit on Thursday.

“The Proposed Acquisition, if consummated, may lessen competition substantially or tend to create a monopoly,” the FTC said in its complaint against Microsoft.

Executives at the Redmond, Wash., company have said it would take a long time to get all the approvals needed from regulators around the world, and it had given itself close to 18 months for the process. The deal could now miss Microsoft’s mid-2023 deadline, and some analysts said Microsoft might want to drop the acquisition.

Microsoft should “take the hint and give up the deal that, if completed, might end up a Pyrrhic victory of executive distraction and expensive regulatory concessions,” John Freeman, vice president at investment-research firm CFRA Research, wrote in a note to investors.

Competitors had expressed concerns the deal would block them from access to Activision games such as the popular ‘Call of Duty’ franchise.



Photo:

Allison Dinner/Associated Press

At stake is Microsoft’s big ambitions for its videogaming business, which had revenue of $16 billion in the company’s last fiscal year. That total represents less than 10% of Microsoft’s overall revenue. The business is a crucial part of Microsoft’s plans to diversify to attract more noncorporate customers.

The FTC’s move came after the company had avoided the brunt of the anti-tech backlash of recent years.

The suit represents a “somewhat meaningful setback” for Microsoft because of the company’s longtime lobbying efforts, said Stifel Nicolaus analyst Brad Reback. “They’ve worked very hard to stay on the right side of government agencies.”

Microsoft’s representative in Washington—its vice chairman and president,

Brad Smith

—has been building relationships in the capital for decades. He had helped cultivate an image of the software giant as one of the friendly technology leaders, an enviable position in a regulatory environment that has been increasingly hostile toward tech titans.

One of the longest-serving leaders inside Microsoft, Mr. Smith joined the company in 1993 and was a legal adviser through its bitter antitrust disputes with regulators worldwide in the 1990s.

“We have been committed since Day One to addressing competition concerns, including by offering earlier this week proposed concessions to the FTC,” Mr. Smith said after the lawsuit was filed. “While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court.”

In its complaint, the FTC accused Microsoft of previously suppressing competition from rivals through its 2021 acquisition of ZeniMax Media Inc., parent of “Doom” developer Bethesda Softworks, despite giving assurances to European antitrust authorities that it would do otherwise. Microsoft said the FTC’s ZeniMax allegation is misinformed.

Brad Smith, Microsoft’s vice chairman and president, has been building relationships in Washington for decades.



Photo:

Zed Jameson/Bloomberg News

Microsoft officials have expressed confidence in closing the Activision deal, which it has valued at $68.7 billion after adjusting for Activision’s net cash. Lawmakers and industry representatives have said it would be hard for any of the biggest U.S. tech companies—including

Apple Inc.,

Amazon.com Inc.,

Google parent

Alphabet Inc.

or

Facebook

owner Meta Platforms Inc.—to win approval for a large acquisition in the current political environment.

In recent years, as government scrutiny and competition between the biggest tech companies have been increasing, Microsoft has tried to appease regulators.

For example, in May, Microsoft announced a set of principles it would abide by when dealing with cloud-service providers in Europe, hoping to assuage concerns its cloud business was hurting European cloud companies. The principles included pledges to work with European cloud providers and support the success of software vendors running on Microsoft’s cloud.

Amid concern the deal could hurt attempts to unionize at Activision or elsewhere in the gaming industry, Microsoft in June said it was open to working with any labor unions that want to organize.

As PlayStation maker

Sony Group Corp.

and others said they were concerned the acquisition could leave competitors locked out of Activision’s popular “Call of Duty” franchise, Microsoft this week said it would make it available for the first time on Nintendo Co.’s Switch gaming consoles for at least 10 years.

Microsoft this week also made its case to the public. “Blocking our acquisition would make the gaming industry less competitive and gamers worse off,” Mr. Smith, wrote in the Monday op-ed article in the Journal. “Think about how much better it is to stream a movie from your couch than drive to Blockbuster. We want to bring the same sort of innovation to the videogame industry.”

It is too soon to tell whether the FTC can succeed in blocking the acquisition. The agency likely will have to go before a federal judge, a process that could take months to unfold, said Eric Talley, a professor at Columbia Law School.

The case could be difficult for the regulator to win because courts have traditionally not seen deals among companies that specialize in different phases of the same industry’s production process—so-called vertical mergers—as competitive dangers, he said.

“It may require the commission to convince a judge to change the law somewhat,” he said. “That makes it a difficult case for the FTC to win, though they presumably knew this going in.”

Write to Sarah E. Needleman at Sarah.Needleman@wsj.com

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Business

Theranos Ex-Operating Chief Sunny Balwani Sentenced to Nearly 13 Years in Prison

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SAN JOSE, Calif.—Theranos Inc.’s former No. 2 executive, Ramesh “Sunny” Balwani, was sentenced to nearly 13 years in prison for his involvement in an elaborate fraud scheme at the blood-testing company, capping a yearslong saga that became synonymous with the worst of Silicon Valley culture.

Mr. Balwani’s sentencing comes more than four years after the collapse of Theranos, which promised to revolutionize healthcare but peddled faulty technology to patients and investors, along the way delivering inaccurate health results and squandering hundreds of millions of dollars. Mr. Balwani helped lead the deception as Theranos’s president and chief operating officer, and along with his longtime romantic partner, he became the focus of one of the highest-profile white-collar cases in recent years.

Theranos founder and former chief executive

Elizabeth Holmes,

Mr. Balwani’s ex-girlfriend, was sentenced last month to 11¼ years for four counts of criminal fraud tied to her now-defunct blood-testing startup. The result is an unusual white-collar criminal punishment for Mr. Balwani: being sentenced to a longer prison term than his former boss, who was at the center of the fraud at her company.

Photos: The Testimony of Elizabeth Holmes

Mr. Balwani declined to make a statement when invited to before his sentencing. He also didn’t testify during his trial. That differed from Ms. Holmes, who testified on her own behalf and issued a tearful apology to the judge about the harm she had caused.

The Balwani sentence marks the final chapter in a corporate scandal that erupted more than seven years ago following a series of Wall Street Journal articles that called into question Theranos’s claims about its blood-testing technology.

The reporting triggered criminal and civil investigations into the company and led to the 2018 indictments of Ms. Holmes and Mr. Balwani on fraud and conspiracy charges. The scandal entered popular American culture, led to a bestselling book, an award-winning Hulu series and a planned movie, in addition to multiple university case studies on corporate fraud.

The once-highflying Theranos now stands as a cautionary signal to Silicon Valley about the criminal risks of misleading investors and consumers about new technology. The sentencing of the top two Theranos executives delivers a remarkable indictment of corporate leaders lying and obfuscating in pursuit of technological and financial success.

“The evidence shows he knew about the fraud,” U.S. District Judge

Edward Davila

said ahead of reading the sentence. He called the crime at Theranos “a true flight from honest business practices.”

Judge Edward Davila declined to find that Sunny Balwani recklessly put patients at risk of death or serious bodily injury.



Photo:

VICKI BEHRINGER/REUTERS

Government prosecutors had requested a 15-year sentence for Mr. Balwani. A report from a probation officer, who provides an objective recommendation for the judge’s consideration, suggested a nine-year sentence. The probation officer found that Mr. Balwani’s crimes fall into the most serious offense category specified by U.S. sentencing guidelines, which carries the possibility of a life prison term. 

“Mr. Balwani came to work day after day and made misrepresentations,” said Assistant U.S. Attorney Jeffrey Schenk. “Investors believed they were investing in a different company.”

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Mr. Balwani, 57 years old, was convicted in July of seven counts of wire fraud and conspiracy against investors in Theranos, and five counts of wire fraud and conspiracy against patients who used Theranos blood tests. His trial showed that Theranos’s blood-testing devices were unreliable and often produced inaccurate results about serious health conditions and that Mr. Balwani and Ms. Holmes lied about the company’s technology, finances and business prospects.

Following his sentencing, Mr. Balwani briefly spoke quietly with members of his family, who had appeared in court to support him.

“We respectfully disagree with the outcome,” said defense attorney Jeffrey Coopersmith. “We are disappointed with the result and we plan to appeal.” Government prosecutors declined to comment.

Sunny Balwani has unresolved civil fraud charges pending against him from the Securities and Exchange Commission.



Photo:

Jason Henry for The Wall Street Journal

Theranos’s victims, Judge Davila said, include venture-capital firms Lucas Venture Group and Peer Venture Partners, and individual investors including

Pat Mendenhall

of U.S. Capital Advisors LLC;

Richard Kovacevich,

the ex-CEO of

Wells Fargo

& Co.; and

Rupert Murdoch.

Mr. Murdoch, who invested $125 million in Theranos, is the executive chairman of

News Corp,

which owns the Journal.

“We all screwed up,” said Mr. Mendenhall, an early Theranos investor who testified against Mr. Balwani. “I will never, ever invest in any company again without audited financials.”

Mr. Murdoch declined to comment Wednesday. After Ms. Holmes’s sentencing, he said he blamed only himself for falling for her fraud. Mr. Kovacevich declined to comment.

Judge Davila declined to find that Mr. Balwani recklessly put patients at risk of death or serious bodily injury, which could have added years to his sentence.

“This is a very close call,” Judge Davila said, acknowledging that Mr. Balwani had “oversight and control over the lab situation.”

Mr. Balwani has been ordered to surrender on March 15, 2023, more than a month earlier than Ms. Holmes was ordered to surrender. Ms. Holmes is pregnant with her second child.

“Let this story be a cautionary tale for entrepreneurs in this district: Those who use lies to cover up the shortfalls of their promised accomplishments risk substantial jail time,” Stephanie Hinds, U.S. attorney for the Northern District of California, said in a statement.

Former Theranos CEO Elizabeth Holmes was sentenced last month.



Photo:

Brian L. Frank for The Wall Street Journal

Mr. Balwani joined Theranos in 2009 as vice chairman of its board and the following year became president and chief operating officer, a position he held until 2016. He ran the company’s lab, despite having no medical credentials.

“This is a complete disregard for other people’s lives,” said Mehrl Ellsworth, a retired Arizona dentist who received four Theranos blood tests in 2015, two of which wrongly suggested he had cancer and two that showed he didn’t. The confusion disrupted his life for about six months, he said, delaying a trip to perform volunteer work in Thailand.

The defense sought to pin the blame on Ms. Holmes, who ran the company for years without Mr. Balwani and often made misleading claims as she sought the media spotlight.

“Mr. Balwani joined this company because he believed in the mission of Theranos,” attorney Mr. Coopersmith said in court Wednesday. “He is not Ms. Holmes. He did not pursue fame and recognition and glory.”

Theranos was propelled by claims from Mr. Balwani and Ms. Holmes that their technology could cheaply and quickly run more than 200 health tests using a proprietary finger-prick device that required just a few drops of blood. Their trials showed that the company managed to use its proprietary device for just 12 types of patient tests.

“They knew the tests were inaccurate and they put patients in danger,” said Alan Eisenman, a Texas-based investor who sank about $1.2 million into Theranos and whose investment underpins one of the guilty counts against Mr. Balwani. “That is worse than the financial fraud.”

Mr. Balwani also was responsible for the financial models given to investors that greatly inflated revenue projections, prosecutors said, and he managed the company’s partnership with

Walgreens Boots Alliance Inc.,

in which Theranos finger-prick tests were offered at the chain’s drugstores.

Theranos raised $945 million from investors, and most of it evaporated.

Mr. Balwani has unresolved civil fraud charges pending against him from the U.S. Securities and Exchange Commission. Ms. Holmes settled her charges, without admitting or denying wrongdoing, which included a $500,000 fine.

Alex Shultz, whose son Tyler Shultz worked at Theranos, gave a victim impact statement during Theranos founder Elizabeth Holmes’s sentencing last month.



Photo:

VICKI BEHRINGER/REUTERS

During his time at Theranos, Mr. Balwani sought to shut down internal criticism about the company’s technical and laboratory failings and often rebuffed staffers who brought concerns to him, his trial showed. He was particularly harsh in dealing with Theranos whistleblower

Tyler Shultz,

who complained in an internal 2014 email that Theranos had doctored research and ignored failed quality-control checks.

Mr. Balwani belittled Mr. Shultz and then took a swipe at his relationship with

George Shultz,

the late former secretary of state and then a Theranos director.

“The only reason I have taken so much time away from work to address this personally is because you are Mr. Shultz’s grandson,” wrote Mr. Balwani to the young Mr. Shultz in an email.

In an interview Wednesday after Mr. Balwani was sentenced, Mr. Shultz said: “I’m not rejoicing at them going to prison, but I think it is well deserved.”

“It is just such a relief that it is over,” he said.

Write to Heather Somerville at heather.somerville@wsj.com and Christopher Weaver at Christopher.Weaver@wsj.com

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US

Walmart to Pay $3.1 Billion to Settle Opioid Lawsuits

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Walmart Inc.

WMT 7.24%

has agreed to pay $3.1 billion to settle opioid-crisis lawsuits brought by several U.S. states and municipalities, adding to a landmark settlement with rival pharmacy chains.

The agreement resolves a collection of lawsuits brought by states, cities and Native American tribes. Earlier this month,

CVS Health Corp.

CVS 1.08%

and

Walgreens

WBA 1.75%

Boots Alliance Inc. agreed to pay roughly $5 billion apiece to settle the lawsuits. The companies didn’t admit wrongdoing in their deals.

The Walmart agreement was announced the same morning that the retail giant reported its latest quarterly results. The company said it took $3.3 billion in charges in the last quarter related to opioid settlements.

Walmart reported stronger-than-expected sales in the October-ended quarter and raised sales and profit goals for the year, signs the big discount chain is drawing in shoppers despite high inflation. Walmart shares rose over 8% in midmorning trading.

Each state, local government and tribe will need to decide whether to participate in the settlement. Plaintiff’s attorneys that lead negotiations are encouraging them to do so, saying the payments hold the pharmacies accountable for their alleged roles in the opioid abuse.

Walmart said that it strongly disputes allegations made in the lawsuits and that the settlement isn’t an admission of liability. The company said its settlement payments will reach communities faster than other deals. CVS is paying out over 10 years, and Walgreens over 15 years.

Walmart has roughly half as many locations as either CVS or Walgreens, which combined have roughly 19,000 U.S. drugstores. Walmart has faced scrutiny from the federal government related to how it prescribed opioids.

The Justice Department filed a lawsuit in December 2020 over its alleged role in the opioid crisis, claiming Walmart sought to boost profits by understaffing its pharmacies and pressuring employees to fill prescriptions quickly. The settlement with the states doesn’t cover the federal case, which Walmart has sought to have dismissed.

The Justice Department sued Walmart a few months after the company had pre-emptively sued the federal government, saying the Justice Department and Drug Enforcement Administration were attempting to scapegoat the company for their failings. Walmart’s suit was dismissed in February 2021. Walmart appealed the dismissal, but lost that case late last year.

Opioid abuse has claimed more than half a million lives and triggered more than 3,000 lawsuits by governments, hospitals and others against players in the pharmaceutical industry, including manufacturers, distributors and drugstores.

The fact that Walmart will pay out funds almost immediately rather than over a decade or more “is particularly noteworthy considering that Walmart dispensed fewer opioids, and at lower dosages, than the other pharmacy defendants,” said lawyer

Paul Geller,

of Robbins Geller, a who is representing local communities.

Write to Sharon Terlep at sharon.terlep@wsj.com and Sarah Nassauer at Sarah.Nassauer@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

FTX bankruptcy is ‘somebody running a company that’s just dumb-as-f___ing greedy,’ says Mark Cuban

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Billionaire Dallas Maverick’s owner Mark Cuban recently offered his perspective on the implosion of crypto platform FTX late this week.

“‘That’s somebody running a company that’s just dumb-as-fucking greedy.’”


— Mark Cuban

Cuban, speaking on Friday at a conference in Washington, D.C. hosted by Sports Business Journal, shared the view that avarice was at the root of the downfall of one-time crypto darling Sam Bankman-Fried, whose firm FTX Group just filed for chapter 11 bankruptcy.

“So what does Sam Bankman [Fried] do, he’s just–‘gimme more, gimme more, gimme more.’ So I’m gonna borrow money, loan it to an affiliated company and hope and pretend to myself that the FTT tokens that are in there on my balance sheet are gonna to sustain their value.”

Check out: Mark Cuban says buying metaverse real estate is ‘the dumbest shit ever

FTX’s collapse marks a stunning turnabout for a company, which was once valued at $26 billion, and whose founder, Bankman-Fried was viewed by many in the crypto industry as a venerable actor in the Wild West of digital exchanges.

On Thursday, the 30-year-old entrepreneur tweeted: “I f—ked up, and should have done better,” referencing the collapse of his exchange.

Embattled FTX, short billions of dollars, sought bankruptcy protection after the exchange experienced the crypto equivalent of a bank run. FTX, an affiliated hedge fund Alameda Research, and dozens of other related companies also filed a bankruptcy petition in Delaware on Friday morning. Boasting a nearly $16 billion fortune recently, Sam Bankman Fried’s net worth had all but evaporated in the wake of the FTX implosion, according to the Bloomberg Billionaires Index.

The price of FTX’s native token FTT went down about 88.8% over the past seven days to around $2.74, according to CoinMarketCap data.

The U.S. Justice Department and the Securities and Exchange Commission are looking into the crypto exchange to determine whether any criminal activity or securities offenses were committed.

Regulators and are examining whether FTX used customer deposits to fund bets at Alameda Research, a no-no in traditional markets, according to reports.

Cuban, who is one of the stars of the investing show “Shark Tank” and owns the NBA’s Dallas Mavericks, is a big investor in crypto and blockchain-related platforms. According to a CNBC report, he has said that 80% of his investments that aren’t on Shark Tank are crypto-centric.

See: Tom Brady, Steph Curry and Kevin O’Leary set to lose big from FTX bankruptcy filing

For his part, Cuban is part of a class-action lawsuit accused of misleading investors into signing up for accounts with crypto platform Voyager Digital, which filed for bankruptcy in July. The suit alleges that Cuban touted his support for Voyager and referred to it “as close to risk-free as you’re gonna get in the crypto universe.”

Cuban mentioned Voyager in his Friday interview. Representatives for the billionaire investor didn’t immediately respond to a request for comment.

The Mavericks owner took to Twitter on Saturday to say that the crypto implosions “have been banking blowups. Lending to the wrong entity, misvaluations of collateral, arrogant arbs, followed by depositor runs.”

Cuban’s net worth is $4.6 billion, according to Forbes.



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World

More Than 130 People Dead in Cable Bridge Collapse in India’s Gujarat State

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The Indian state government of Gujarat opened a criminal inquiry into the agency tasked with maintaining a historic cable bridge after the popular attraction collapsed on Sunday under the weight of hundreds of visitors, killing more than 130 people.

Harsh Sanghavi, the state’s home minister, told reporters that an inquiry under criminal provisions relating to manslaughter was opened into a local company. The bridge, which was built in the late 19th century, reopened to the public last week after months for repairs.

Mr. Sanghavi didn’t name the company. Several Indian news outlets reported that a local industrial company known as Oreva was in charge of the bridge’s maintenance and repairs.

Ashok Yadav, a senior official with the Gujarat state police, told reporters late Monday that nine people had been arrested in connection with the probe into the bridge’s collapse. The arrested people included two managers of the Oreva company, two ticket clerks at the bridge that collapsed, two bridge-repair contractors and three security guards tasked with regulating the entry of people on the bridge, according to Mr. Yadav.

Calls to Oreva weren’t answered on Monday and it didn’t respond to emails seeking comment.

Mr. Yadav said police could make more arrests as the inquiry continues.

“Our effort is to set a strong example through this whole process,” he said.

Rescue operations continued into Monday, with 170 people pulled from the waters of the Machchhu river that the bridge spanned, the state disaster management agency said.

Videos shared by television channels and on social media showed people in the water clinging to portions of the collapsed bridge and trying to climb out.

The death toll could continue to rise after a suspension bridge collapsed in the western Indian state of Gujarat, killing more than 130 people. The popular tourist attraction was crowded as hundreds of people visited the area to celebrate holidays including Diwali. Photo: AP Photo/Ajit Solanki

Tushar Daftary, a local member of Lions Clubs International community service group, who was among those helping with rescue operations last night, said many people were visiting family in the area due public holidays in the past week, including Diwali and Gujarati new year. That meant more people than usual visited the bridge over the weekend, according to Mr. Daftary.

A local news report said some visitors expressed concerns to ticket agents that some people were shaking the overcrowded bridge.

Videos posted on social media platform Twitter showed the bridge—which sways when people walk on it—thronged with visitors, some of whom appeared to be vigorously shaking its suspension cables. Users of

Meta Platforms Inc.’s

Facebook in India and outside the country, however, were unable to view posts with the Gujarat hashtag for several hours on Monday.

“Keeping our community safe,” a message said, when users clicked through to a page that would normally display a stream of videos, photos and news reports related to the state or the bridge collapse. It added that the posts were temporarily hidden as “some content in those posts goes against our Community Standards.”

“The hashtag was blocked in error,” a Meta spokeswoman said Tuesday, adding that it has since been restored.

She declined to say what material may have violated the platform’s standards, which don’t allow violent and graphic content, hate speech, and other types of material. India is Facebook’s largest market by users. Meanwhile, videos of Halloween revelers being crushed in South Korea over the weekend remained visible throughout Monday via a hashtag for the world Seoul.

After The Wall Street Journal sought comment from Facebook Monday, posts with the Gujarat hashtag became visible again, with the top post a video from an Indian TV network showing the moment the bridge collapsed.

The state has said it would award the equivalent of nearly $4,900 to families of those who died in the disaster, as well as give compensation to the injured. Indian Prime Minister

Narendra Modi,

who governed the state for more than a decade as he cemented his political rise, also unveiled compensation for victims and expressed his sorrow.

The tragedy cast a shadow over Mr. Modi’s three-day visit to the state that started Sunday, which is intended to showcase development projects ahead of elections there that are due later this year. The prime minister has been leading a renewed push to draw more factories to India and to create more jobs. In the hours before the bridge collapse, Mr. Modi presided over the start of construction on an aircraft manufacturing facility in the state in partnership with Europe’s Airbus SE, hailing it as a step forward for the country’s goal of becoming a global manufacturing hub.

But India’s efforts to attract more manufacturing and create more jobs have often faced challenges from concerns over the country’s dilapidated infrastructure and safety lapses, a worry that is likely to be made worse by Sunday’s disaster.

—Newley Purnell contributed to this article.

Write to Krishna Pokharel at krishna.pokharel@wsj.com and Tripti Lahiri at tripti.lahiri@wsj.com

Corrections & Amplifications
Harsh Sanghavi is the home minister for India’s Gujarat state. An earlier version of this article misspelled his surname as Sanghvi on second reference. (Corrected on Nov. 1)

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Elon Musk Buys Twitter, Immediately Fires CEO and CFO

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Elon Musk

fired several Twitter Inc. executives after completing his takeover of the company, according to people familiar with the matter, capping an unusual corporate battle and setting up one of the world’s most influential social-media platforms for potentially broad change.

Mr. Musk fired Chief Executive Parag Agrawal and Chief Financial Officer Ned Segal after the deal closed, the people said. Mr. Musk also fired Vijaya Gadde, Twitter’s top legal and policy executive, and Sean Edgett, general counsel. Spokespeople for Twitter didn’t comment.

Ask WSJ

The Musk-Twitter Deal

WSJ Financial Editor Charles Forelle sits down with Alexa Corse, WSJ reporter covering Twitter, at 1 p.m. ET Oct. 28 to discuss Elon Musk’s takeover of Twitter. What does the future hold for the platform? And what does this deal mean for Mr. Musk’s business empire?

Hours after those actions, Mr. Musk tweeted: “the bird is freed” in a seeming reference to Twitter, which has a blue bird as its logo.

Mr. Musk first agreed to buy Twitter in April for $44 billion, then threatened to walk away from the deal, before reversing course this month and committing to see through the acquisition. He previously indicated unhappiness with some of the top ranks at Twitter, at one point responding to a tweet from Mr. Agrawal with a poop emoji. He also used the site to mock Ms. Gadde, the top legal boss, tweeting an image overlaid with text that repeated allegations Twitter had a left-wing political bias.

It wasn’t immediately clear who would step into the top positions left vacant by Thursday’s exits. CNBC earlier reported the departures of Mr. Agrawal and Mr. Segal.

The deal, in which Twitter will again become a private company, adds to Mr. Musk’s expansive business reach, which includes running

Tesla Inc.,

the world’s most-valuable car company, and rocket company Space Exploration Technologies Corp., or SpaceX, among other endeavors. Mr. Musk, who had become Twitter’s largest individual shareholder, previously said he would pay for the acquisition mostly with cash, some contributed by co-investors, and $13 billion in debt.

There were signs this week indicating that Mr. Musk was moving closer to acquiring the social-media platform by Friday’s 5 p.m. deadline. Banks started sending money backing the deal, The Wall Street Journal reported. Mr. Musk also has changed his Twitter bio to “Chief Twit,” showed himself walking into the San Francisco headquarters of the social-media platform, and issued a statement on Twitter explaining his vision for the site to advertisers.

Closing the deal ends a monthslong saga of whether Mr. Musk would or wouldn’t purchase the company. The acquisition also puts one of the world’s most prominent social-media platforms under the control of the world’s richest person, with implications for the future of online discourse.

A self-described free-speech absolutist, Mr. Musk has pledged to limit content moderation in favor of emphasizing free speech. However, that approach risks causing conflicts with some advertisers, politicians and users who would prefer a more-moderated platform.

Elon Musk completed the deal for Twitter a day before a court-imposed deadline.



Photo:

Carina Johansen/NTB/Agence France-Presse/Getty Images

In a message to advertisers on Twitter on Thursday, Mr. Musk said he was buying the company to “have a common digital town square, where a wide range of beliefs can be debated in a healthy manner.” He said Twitter “cannot become a free-for-all hellscape, where anything can be said with no consequences!”

Mr. Musk said the platform must be “warm and welcoming to all” and suggested Twitter could let people “choose your desired experience according to your preferences, just as you can choose, for example, to see movies or play videogames ranging from all ages to mature.”

Mr. Musk’s decision to go through with the Twitter takeover came two weeks before a trial in Delaware was set to begin over the stalled deal. The judge presiding over the legal clash agreed to pause the litigation, granting a request by Mr. Musk for more time to complete the takeover. The judge gave Mr. Musk until Oct. 28 to follow through with his offer, or said she would schedule a November trial.

Mr. Musk offered in April to buy Twitter for $54.20 a share—higher than the company was valued at the time. In the months since the deal was struck, Twitter has faced efforts by Mr. Musk to abandon the deal, a whistleblower complaint in which Twitter’s former head of security accused the company of security and privacy problems, and unsuccessful talks to negotiate a lower price with Mr. Musk.

The New York Stock Exchange has suspended Twitter shares from trading, starting Friday. The stock closed Thursday at $53.70.

Mr. Musk’s takeover leaves big questions over the future of the platform, including how he might revamp its business model and how he might implement changes he has proposed for the way it polices content.

Like other social-media companies, Twitter heavily relies on digital advertising and has faced headwinds in recent months due to broad economic uncertainty. It will also be saddled with billions in debt as a result of the deal, and payments on those loans will add costs for a company that has posted a loss in eight of its past 10 fiscal years.

Twitter will be saddled with billions of dollars in debt as a result of the deal.



Photo:

Godofredo A. Vásquez/Associated Press

The deal turned into a wild business drama with little precedent. Mr. Musk moved to buy Twitter in April. After signing a merger agreement, however, he accused the company of misrepresenting the prevalence of fake and spam accounts on its platform, which Twitter denied.

He formally tried to abandon the deal in July, prompting Twitter to sue him to enforce the original merger agreement. Mr. Musk countersued.

In early October, Mr. Musk suddenly abandoned his legal battle with Twitter, with little public explanation. After his reversal, he tweeted that “Buying Twitter is an accelerant to creating X, the everything app.” He previously suggested he could create a social-media platform named X.com if he didn’t buy Twitter.

Eric Talley, a law professor at Columbia University, said after the most recent about-face that several factors were piling up against Mr. Musk, including rulings from the court denying some of Mr. Musk’s discovery requests. Chancellor Kathaleen McCormick, who was overseeing the case in Delaware, had called some of his data requests “absurdly broad.”

“He has spent months with various attempts to figure out ways out of this deal,” Mr. Talley said. “All those windows had started to close and some of them closed completely.”

Vijaya Gadde, Twitter’s top legal executive, whom Elon Musk mocked on the site, is among the ousted executives.



Photo:

Martina Albertazzi/Bloomberg News

Mr. Musk’s specific plans for the company remain unclear. He could return Twitter to public ownership after just a few years, the Journal previously reported.

By taking Twitter private, the billionaire entrepreneur likely can take more risks to jump-start the company’s business. “It’s going to be bumpy,” said Youssef Squali, lead internet analyst at Truist Securities. “He can take it away for a couple of years, really kind of re-engineer the whole thing,” Mr. Squali said.

Mr. Musk has suggested he wants to shift Twitter away from its advertising-heavy business model to other forms of revenue, including a greater emphasis on subscriptions. Advertising accounted for more than 90% of Twitter’s revenue in the second quarter of this year.

He said he would allow former President Donald Trump back on the platform, though Mr. Trump has said he doesn’t intend to return to it. Twitter banned Mr. Trump in the wake of the Jan. 6, 2021, attack on the U.S. Capitol, citing what the company called the risk of further incitement of violence.

“Twitter is obviously not going to be turned into some right wing nuthouse. Aiming to be as broadly inclusive as possible,” Mr. Musk said in a message that was among a trove released as part of the legal battle.

The prospect of Mr. Musk taking over Twitter, as well as the subsequent uncertainty over the deal, roiled many Twitter employees. Twitter has told employees that they will hear from Mr. Musk on Friday, according to an internal note reviewed by the Journal.

—Erin Mulvaney contributed to this article.

Write to Alexa Corse at alexa.corse@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



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Business

Twitter, Elon Musk Talks Continue, Focus on Financing, Litigation

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Representatives of

Twitter Inc.

TWTR -3.72%

and

Elon Musk

continued Thursday to work to hammer out an agreement that would allow the billionaire’s purchase of the social-media company to proceed, with the parties racing to seal a pact by Monday, a person familiar with the matter said.

Mr. Musk effectively kicked off the negotiations earlier this week with his surprise proposal to close the deal at its original price after seeking for months to get out of it.

The negotiations, which follow an earlier effort to negotiate a lower price, are focused on ensuring that Mr. Musk’s debt financing will remain in place and on conditions to stay litigation over the deal until it closes, as The Wall Street Journal reported Wednesday. Mr. Musk is now requesting that the deal be contingent on his receipt of the necessary debt financing.

The lawyers are trying to reach an agreement that would pause a trial planned for Oct. 17 in the next few days, the person said. That would avert a deposition from Mr. Musk, which after being postponed is now scheduled for Monday.

The idea is to put the litigation on hold until the deal closes, at which point it would be dropped. That could take days or a few weeks.

Meanwhile, Mr. Musk’s team in a Thursday filing asked the court to stay the lawsuit. It said in the filing that the financing banks are working to fund the deal so it can close, which it expects to happen on or around Oct. 28. His team argues that proceeding with the litigation, as it says Twitter prefers, could keep the deal in limbo longer.

The two sides remain in active dialogue and things could change quickly, the person cautioned.

Mr. Musk agreed to buy Twitter in April for $54.20 a share, or $44 billion. He later moved to get out of the deal, claiming among other things that Twitter had misrepresented the number of bots on its platform. Twitter sued him over the summer and he countersued.

Renewed uncertainty about the deal has weighed on Twitter shares, which closed down 3.7% at $49.39 Thursday. They had shot up above $52 earlier in the week after Mr. Musk signaled a willingness to close the deal after all.

—Alexa Corse contributed to this article.

Write to Cara Lombardo at cara.lombardo@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Elon Musk and Twitter at Odds Over Terms of Agreement to Close Deal

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Representatives of Elon Musk and Twitter Inc. are still grappling with terms of an agreement that would enable the purchase of the social-media company to proceed, continuing a monthslong drama surrounding the fate of the blockbuster deal.

The discussions are the latest the two sides have held as a courtroom clash draws nearer. They quietly held unsuccessful talks about a possible cut to the price of $44 billion for the social-media platform before Mr. Musk reversed course Monday and said he would return to the original agreement’s terms, people familiar with the matter said.

As of late Wednesday, representatives of Mr. Musk and Twitter were trying to hash out the details of his proposal this week to stick to that original agreement, the people familiar with the matter said. Sticking points include what would be required from both sides for litigation over the stalled deal to be dropped and whether the deal’s closing would be contingent on Mr. Musk receiving the necessary debt financing, some of the people said.

There was initially hope a deal could be reached Tuesday or Wednesday, averting a trial scheduled to start Oct. 17, the people said. The two sides have agreed to delay Mr. Musk’s deposition, which was scheduled to begin Thursday in Texas, some of the people said, to continue efforts to reach agreement on how to move forward.

The informal discussions about a cut in the $44 billion purchase price happened in a series of conference calls in recent weeks between lawyers and ended after the two sides failed to agree on terms of a potential deal, the people said.

The price-cut talks had broken off before Mr. Musk caught Twitter off-guard by sending Twitter’s lawyers a two-sentence letter proposing to move forward on the original terms.

Mr. Musk’s apparent change of heart Monday surprised many observers. The Tesla Inc. chief executive had spent the past several months trying to back out of the deal after alleging Twitter misled him about key elements of its business, including the amount of spam on its platform.

In July, Mr. Musk formally moved to walk away from the deal, prompting Twitter to sue him to follow through with the transaction on the agreed terms. Mr. Musk countersued, alleging Twitter misrepresented the condition of its business and key metrics about the users on its platform, which Twitter has denied.

For now, the Delaware Chancery Court judge presiding over the legal battle is pressing ahead with trial preparations.

Chancellor Kathaleen McCormick ordered Mr. Musk’s team Wednesday to search for any more possible electronic messages requested by Twitter as the two sides prepare for a five-day, nonjury trial in Wilmington, Del. She said neither party had moved to stop the litigation.

“The parties have not filed a stipulation to stay this action, nor has any party moved for a stay,” the judge wrote Wednesday. “I, therefore, continue to press on toward our trial set to begin on October 17.”

The Musk team has been aggressive in pushing for broad information from Twitter, including a range of employee communications and data related to spam and fake accounts. Those requests at times prompted frustration from Chancellor McCormick. She granted some requests but denied others, and once called Mr. Musk’s data requests “absurdly broad.”

Legal experts have maintained from the beginning that Twitter appeared to have the stronger case, in part because Mr. Musk waived due diligence before agreeing to the deal and the merger agreement gave Twitter the right to sue him to follow through with it under a concept called “specific performance.”

Still, even a small risk of Mr. Musk prevailing in a trial could be too much for a company the size of Twitter to bear. For this reason, the majority of broken deal cases end in negotiated settlements, often with a small price cut. Such was the case with litigation between LVMH Moët Hennessy Louis Vuitton SE and Tiffany & Co. in 2020. Those parties agreed to a nearly 3% price cut to avert a trial.

While Twitter’s stock price has held up because of Mr. Musk’s potential acquisition, its performance has declined. The company reported a drop in revenue in the second quarter that it blamed on weakness in the advertising industry and uncertainty related to Mr. Musk’s acquisition.

Mr. Musk has given few specific details about his plans for Twitter, but he has said he wants to transform Twitter as a private company and unlock what he called its extraordinary potential as a platform for free speech.

Write to Cara Lombardo at cara.lombardo@wsj.com and Alexa Corse at alexa.corse@wsj.com

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