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Techspace - In a San Francisco courtroom on Wednesday, the issue of whether Tesla CEO Elon Musk is a con artist or just too careless with his words took center stage. Musk's infamous tweet from 2018 stated that funding was "secured" to assume Tesla private at a probable value of $420 per share was under scrutiny.
Tesla shareholders who dealt the company's stock in the days following Musk's tweet are suing the executive for billions of dollars in damages in a class-action lawsuit that has been ongoing for two days.
The tone and purpose of that tweet will determine the trial's outcome. The plaintiffs claim that ordinary investors lost money as a result. On the other hand, Musk's attorneys argue that the tweet was both accurate (Musk did intend to take Tesla private) and a mistake ("funding secured" was the wrong word choice).
The jury must decide whether: 1) Musk tweeted false information to influence Tesla's share price; 2) By exaggerating the status of the deal's funding, the tweets created an artificially high share price for Tesla; and, if so, in what amount.
Glen Littleton, a Tesla investor and lead complainant in the case, stated on Wednesday that he took Musk at his word and ended up selling somewhere between 90% and 95% of his positions out of fear of financial ruin. “I told the jurors that he couldn't afford to stay in. His lawyers said that as a result, he lost $3.5 million.”
Am considering taking Tesla private at $420. Funding secured.
Musk will have to pay a lot of money if he loses the case. However, the CEO's already shaky reputation could be jeopardized if the jury finds that he knowingly tweeted false information.
Since he bought Twitter and continued to scream even louder into the void of the platform, shareholders have lost faith in the star executive.
The Twitter dramas, which include Musk trading Tesla stock to pay for a Twitter business, may even be part of why the company's stock price dropped 65 percent in 2022, according to some investors.
Musk's lawyers have realized the damage to his reputation. They argue that Musk couldn't get a reasonable attempt in San Francisco due to the jury pool's potential prejudices against Musk after the executive took over Twitter and laid off more than 3,750 employees. They want the trial moved to Texas, where Tesla has had its headquarters since 2021.
Judge Edward Chen of the United States District Court rejected the bid, siding with shareholder lawyers who claimed Musk had made his bed and could now sleep in it.
Funding Secured
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Tesla's share price fluctuated by approximately $14 billion in the ten days following the tweet (August 7-17).
After that, a few days later, in a blog post in which he explained why he wanted to take Tesla private, Musk somewhat backtracked.
Musk stated in the post that, based on multiple meetings with the Saudi Arabian sovereign wealth fund, he truly believed a deal had been reached and that all that was required was to move the process along, which is why the tweet that went wrong was sent.
It turned out that funding was not secured, and the Saudis backed out in the days that followed the tweet. After that, Musk said that the governor of the kingdom's Public Investment Fund had put him "under the bus."
In the meantime, the Saudi fund made a $1 billion investment in Lucid Motors in September to launch the Air.
Techcrunch claims that the Securities Exchange Commission investigated the entire ordeal. That case was settled without Musk or Tesla admitting any wrongdoing, and they were each fined $40 million.
Musk was forced to resign as chair of Tesla's board, and the executive agreed to refrain from tweets about Tesla that could impact the public markets with less haste. However, he has yet to keep that promise.
False and Misleading
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Judge Chen ruled that Musk's tweets were "false and misleading" in April last year and that he "recklessly made the statements with knowledge as to their falsity."
That could be good news for the plaintiffs, attempting to persuade the jury that the statements impacted Tesla's share price. However, this is a jury trial, so Chen's fate is not solely at stake.
In addition, the jury will be required to determine the number of damages and whether they believe Musk acted knowingly.
Wednesday, Musk's attorneys argued that the executive had sincerely intended to take Tesla private and that he tweeted that he was considering doing so as a "split-second decision." He tweeted "funding secured" after reading a news article revealing Saudi Arabia's significant investment in the business.
In his opening argument in federal court in San Francisco, Musk's attorney Alex Spiro told jurors, "He decided in that rushed moment, imperfect or not, that disclosure was a better course." He didn't want to let anything leak.
Spiro claimed that the tweets did not affect the market; Tesla's stock rose when the plan's specifics were discussed in a meeting following the tweet.
The attorney for Tesla's shareholders, Nicholas Porritt, stated that the tweet and other messages Musk and Tesla sent were "lies" that caused ordinary investors to lose millions of dollars.
Tesla's current stockholders have expressed disapproval of Musk's leadership of Twitter, which he purchased in April and then promptly decommissioned, alienating users and advertisers. They are concerned that he has been spending less time on the electric car manufacturer at a time when competition is getting tougher.
These concerns were a factor in the 65 percent drop in Tesla's stock last year, which wiped out more than $700 billion in shareholder wealth. This was significantly more than the $14 billion fortune swing that occurred between the company's high and low stock prices from August 7 to August 17, the period covered by the lawsuit.
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