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Elon Musk is due in court next week for his infamous tweet claiming he had secured financing to take Tesla private at $420 per share. A 10-day civil trial with jury selection scheduled for Tuesday, January 17 begins in U.S. District Court for the Northern District of California.
The class action lawsuit alleges Musk harmed investors with this August 7, 2018 tweet: “Consider taking Tesla private for $420. Funding secured.” Additional statements from Musk and Tesla reinforced the false impression created by Musk’s private claim, the lead prosecutor says.
“As a result of the price turmoil for Tesla stocks, options and bonds caused by Musk and Tesla’s statements, investors lost billions of dollars from August 7, 2018 to August 17, 2018,” said lead prosecutor Glen Littleton in October. said. “This damage includes losses from the effect on Tesla securities prices immediately following the August 7, 2018 tweets, which was subsequently corrected from August 8, 2018 to August 17, 2018 when the falsity of the tweets was realized by investors. Without Musk and Tesla’s fraudulent statements, these losses would not have been incurred by Tesla investors.”
Law professor Robert Miller told Ars that he thinks Musk will lose and that the only unresolved question is how much he will have to pay in damages. “Elon is going to lose, and he’s going to lose a significant amount. We’re just talking about exactly how much,” said Miller, the F. Arnold Daum chair in corporate finance and law at the University of Iowa College of Law. The case will determine “how much of the inflation and deflation is attributable to the fraud,” he said.
Another expert agrees. “Everything is set for the plaintiffs to win here,” Minor Myers, a professor of corporate law at the University of Connecticut, told Reuters. While Musk’s chances of winning outright are low, the plaintiff still needs to prove that his false statements directly caused investors’ losses in order to get a significant payout. They are seeking billions of dollars in damages for investors who bought Tesla stock at high prices and sold it at a loss.
According to a filing from Musk, the plaintiff’s request is $66.67 in punitive damages, including the alleged effects of Musk’s tweets and “consequential effects” such as shareholder lawsuits and negative coverage. Musk disputes this calculation.
The $420 price suggested in Musk’s tweet was nearly 20 percent more than Tesla’s closing price of $349.54 on August 2, 2018. “Musk believed that 20 percent was a ‘standard premium’ in private transactions,” the lawsuit said. . While the exact calculation was $419.49, Musk rounded the price to $420 per share, thinking his girlfriend at the time, Claire Elise Boucher (aka ‘Grimes’), would find it funny because of the meaning of the number for marijuana users.”
Judge ruled tweets false and reckless
While a jury will decide the case, District Judge Edward Chen has already issued a major ruling that will make it more difficult for Musk to win. In April 2022, Chen granted Littleton’s motion for a partial summary judgment in part, ruling that Musk had recklessly made false statements.
“The court finds that, based on the evidence presented, there is no real dispute that the first three statements in question were false and that Mr. Musk recklessly made those statements,” Chen’s ruling read. Chen only sided with Littleton after a fourth statement from an Aug. 13, 2018 Musk blog post, detailing ongoing communications with the Saudi Arabian sovereign wealth fund.
The jury will be informed of that verdict. As Chen wrote: “[T]The jury will be told that the court has already determined that the August 2018 tweets were false and made with the requisite scientist.” (Scienter is a legal term for intent or knowledge of wrongdoing.)
The first of the three statements Chen found false and reckless was the infamous tweet: “Consider taking Tesla private for $420. Funding secured.” Chen’s ruling stated that “a reasonable jury could reach only one conclusion:i.ethat mr. Musk recklessly tweeted to the public that funding had been secured.”
