A jury in San Francisco is now deciding whether Elon Musk, Tesla (TSLA) and certain members of the company’s board of directors are responsible for the business losses of a group of shareholders allegedly caused by the “funded” Twitter messages of Musk in 2018 on the acquisition of the electric vehicle company. of Private.
Shareholders allege that Musk and some of Tesla’s current and former board members violated certain Securities and Exchange Act laws that prohibit making or promoting fraudulent or misleading statements in connection with the sale or purchase of titles. They are seeking alleged damages in the billions.
Prior to jury deliberations on Friday, shareholders’ attorney Nicholas Porritt and an attorney representing Musk, Tesla and Tesla board members Alex Spiro presented closing arguments to the jury.
“These tweets hurt investors…a lot of harm,” Porritt told the nine-judge panel. “What moved the market…is [Musk’s] Representations of August 7 that were not true.
Tweet of August 7, 2018 by Elon Musk
Spiro contradicted the shareholders’ claims, telling the jury that “funding doesn’t move the market,” but “eventual privatization” does.
Spiro said Musk’s tweet made it clear that a privatization deal was only a consideration and that shareholders knew that all along. Nonetheless, Spiro said Musk had received a verbal commitment from Saudi Arabia’s Public Investment Fund (PIF) a week before the July 31, 2018 tweet, and alternatively had the option of funding a private transaction with his own assets.
“Everyone knew funding was not an issue,” Spiro said, citing what Deep Ahuja, then Musk and Tesla’s chief financial officer, said the Saudi fund representative said in a meeting of the July 31, which they both attended, he is ready to meet the takeover – private financing. Musk also knows, Spiro said, that his shares in his private company, Space X, are more than enough to fund a private transaction.
The tweet was posted on Elon Musk’s Twitter account on August 7, 2018.
Spiro then highlighted an email sent by Musk on Aug. 2 to Tesla’s board of directors informing him of the funding to take the company private for $420 per share.
“It was a real proposition that he made to his board,” Spiro said. He added that Goldman Sachs’ chief investment banker, who also testified, said Musk had signed an advance loan agreement with his firm – which also acts as a banker for the PIF – to explore the opportunity to privatize Tesla.
Possible damage in the billions
The dispute involves billions of dollars in losses from stock trades, which the plaintiffs say would not have happened without Musk’s tweets. They say Musk and the board should compensate them for lost trades after postings from August 7, 2018 to August 17, 2018.
Tesla’s market capitalization fluctuated around $12.6 billion during the 10-day period. An economist testifying on behalf of shareholders said, excluding option contracts for the period, he calculated the damage to the long-short class of Tesla shares to be between $4 billion and $11 billion. .
Closing price of Tesla stock (adjusted for subsequent stock split) from August 6, 2018 to August 17, 2018.
Porritt said the real situation at the time of Musk’s tweets was that the PIF had expressed interest in a potential transaction, but funding had not been secured. He told jurors to be skeptical that the roughly $60 billion privatization deal was not recorded in meeting notes and financial documents.
“Securities laws prohibit behavior like that of Elon Musk,” Porritt told the jury, calling Musk’s explanations for his tweets an “apology” and a distraction from accountability to the public market.
“Without trust, the market no longer works,” Porritt said.
The shareholders’ attorney also said that Tesla and Tesla’s board members named in the lawsuit should be held accountable, especially given what he said were numerous prior warnings about inaccurate tweets by Musk.
“Tesla made a conscious choice to make Elon its public image,” he said. “When Elon tweets about Tesla, people listen.”
Tesla CEO Elon Musk and his security guards leave the company’s local office in Washington, U.S. January 27, 2023. REUTERS/Jonathan Ernst TPX IMAGES OF THE DAY
Tesla shareholders, Tesla board members, economists and stock analysts also testified during the three-week trial.
Musk himself spent two and a half days testifying, saying his tweets were ‘truthful’ and intended to ensure all investors had access to the same information about the confidential talks before a news leak published them. .
The jury is charged with assessing whether Musk knew at the time of the tweets that the information they contained was false and whether it was material — something a reasonable investor would rely on to make investment decisions. The jury must also determine whether the tweeted information caused shareholders to buy or sell Tesla shares to their detriment.
Before the trial, Upper Circuit Judge Edward Chen, who presided over the case, made the shareholders’ case more provable by ruling that Musk’s funding statement was false.
Tesla board members named in the lawsuit include former members Brad Buss, Antonio Gracias and Linda Johnson, and current members Robyn Denholm, Ira Ehrenpreis, James Murdoch and Musk’s brother Kimbal Musk.
In a separate case brought by the Securities and Exchange Commission in response to the funding tweet, Musk and Tesla settled the case and each paid a $20 million fine. Musk also agreed in the deal to step down as Tesla CEO and have potentially “material” tweets reviewed by Tesla’s general counsel before publication. Musk is currently trying to resolve this part of the settlement.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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