Elon Musk, who is used to dangerous and often controversial statements, caught up with one of his comments from 2018 that will be the subject of a trial from Tuesday. He claimed in a tweet on August 7, 2018 that he had raised the “necessary financing” to buy Tesla for $72 billion, or $420 per share. He amplified the tweet with a statement that a deal with Tesla shareholders was imminent. But the purchase never materialized and now he has to explain his statements under oath in federal court in San Francisco, California. Experts say he could lose the case.
Elon Musk – billionaire and CEO of several technology companies, including Tesla, SpaceX, Neuralink and Twitter which he bought just three months ago – defines himself as a libertarian and “an unquestionable defender of freedom in expression” . However, many accuse Musk of hiding behind this posture to manipulate people into making “strange and misleading” statements. It’s been the source of many of these disturbances over the past few years, but it doesn’t seem like it’s going to stop anytime soon. Over the years, Musk has tweeted about cryptocurrencies, including Dogecoin and Bitcoin, and on Twitter before the acquisition in late October.
But even before buying Twitter for $44 billion in October, Musk set his sights on Tesla, the electric carmaker of which he is still CEO and from which he derives most of his wealth and fame. On August 7, 2018, Musk tweeted that he had raised the necessary funds to take Tesla private and that a deal was imminent. That said, the takeover did not take place. At the time, Musk’s tweets fueled a rally in Tesla’s stock price that ended abruptly a week later when it appeared he ultimately lacked the funds for a buyout.
I’m considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
Musk scrapped plans to take the automaker private, which earned him a $40 million settlement with US securities regulators, which also forced him to step down as the company’s chairman. The billionaire has since said he entered into the deal under duress and has maintained he believes he secured financial backing for the Tesla takeover during meetings with officials from Saudi Arabia’s Public Investment Fund. But the story did not end there. Tesla shareholders have filed a complaint against Musk and he must now explain his statements.
The US District Court for the Northern District of California is due to begin a 10-day trial on Tuesday, January 17. Musk is accused of manipulating Tesla shares by tweeting that he would take it private for $420 a share and he has the means to do it. He probably set the price at $420 because he thought his girlfriend Claire Elise Boucher, aka Grimes, was funny. In his October brief, lead plaintiff Glen Littleton said investors lost billions of dollars between August 7 and August 17, 2018, due to price volatility in Tesla stocks, options and bonds .
These damages include losses resulting from the impact on Tesla stock prices immediately following the August 7, 2018 tweets, which were later corrected from August 8, 2018 to August 17, 2018 when the tweets misidentified by investors. But for the “misleading” statements made by Musk and Tesla, these losses would not have been suffered by Tesla investors, the complaint document states. Investors who bought Tesla shares at high prices and then sold them at a loss have sought billions of dollars in damages. However, the losses remain to be proven.
The lawsuit is based on the premise that Tesla shares would not have traded in such a range if Musk had not dangled the prospect of buying the company for $420 per share. Tesla stock has split twice since then, so the $420 price is now worth $28 on an adjusted basis. The stock closed last week at $122.40, down from a November 2021 division-adjusted peak of $414.50. Tesla’s stock was worth more before Musk decided to buy Twitter for a price that even he admitted was higher than the value of the social network.
After Musk dismissed the idea of a Tesla takeover, the company overcame a production glitch, leading to a rapid recovery in car sales that boosted the stock price and made Musk the richest man in the world until he bought Twitter. Musk has fallen from the top spot on the list of the world’s richest people after a stock market backlash over his management of Twitter. Also, since Tesla is the main source of Musk’s wealth, he lost his place as the richest person in the world after he sold his Tesla shares for billions of dollars to fund the Twitter takeover.
The trial should shed more light on Musk’s management style, as the witness list includes some of Tesla’s current and former senior executives and board members, including figures such as co-founder Larry Ellison . Oracle, as well as James Murdoch, son of media magnate Rupert Murdoch. The trial may also shed light on Musk’s relationship with his brother Kimbal, who is also on the list of potential witnesses to be called. According to people familiar with the case, the trial should continue until February 1.
Legal experts say Musk will lose and the only open question is how much damages he will have to pay. Robert Miller, law professor at the University of Iowa Law School, said: Musk is going to lose, and he’s going to lose a lot. We’re just talking about the exact amount Musk has to pay and inflation and deflation due to fraud. Judge Edward Chen has reportedly already ruled that Musk’s takeover tweet was false, leaving it up to a jury to decide whether he acted recklessly in posting it and caused financial harm to those Tesla shareholders.
The outcome of the trial may depend on the jury’s interpretation of Musk’s motives. On Friday, Judge Chen dealt Musk another setback by denying his request to move the trial to a federal court in Texas, where Tesla is moving its headquarters in 2021. He argued Musk said the negative coverage of his purchase on Twitter poisoned the composition of the jury in the San Francisco Bay Area.
Musk’s leadership of Twitter — whose staff he fired and alienated users and advertisers — has proven unpopular with current Tesla shareholders, who fear he will spend less time running the automaker at a time when competition is intensifying. Those concerns contributed to a 65% drop in Tesla stock last year. Shareholders lost more than $700 billion in wealth due to this drop in Tesla’s stock price.
Source: Complaint Document
What is your opinion on the subject?
Tesla faces US criminal investigation over Musk’s announcement to take company private, he admitted in DOJ request for documents
USA: SEC sues Elon Musk and wants to ban him from any management position at a listed company for his announcement to take Tesla private
Tesla’s new CFO steps down, stock drops and Elon Musk smokes, a summary of the latest company news
SEC asks Musk to step down as Tesla chairman, seeks US$40 million fine for out-of-court settlement