Elon Musk has defeated a shareholder lawsuit alleging tweets claiming he has the “secure funding” to take billions of dollars in losses for private Tesla investors.
The verdict was delivered Friday in federal court in San Francisco after a three-week trial, in a victory for the billionaire CEO of the electric vehicle maker.
The nine-person jury took just under two hours to reach their decision, which was unanimous.
“The jury got it right,” Alex Spiro, a lawyer for Musk, said after the verdict.
Representing “thousands” of Tesla investors in the class action, lead attorney Nicholas Porritt had framed the case as an important test of rules and regulations for financial markets and society at large, during closing arguments earlier. Friday in federal court.
“Rules that apply to everyone should apply to Elon Musk,” Porritt said. “Elon Musk posted tweets that were false, with a reckless disregard for the truth, and those tweets hurt investors. Much trouble.
He concluded: “All American companies are watching.”
Musk, who had spoken as a witness in the case, was present in court during closing arguments. The case centered on his August 7, 2015 tweet stating that he was considering taking Tesla private at $420 per share and that he had secured funding to do so. That sent stocks spinning, with the Nasdaq temporarily halting trading in the electric vehicle company due to volatility.
During the trial, and again during the plaintiff’s closing argument on Friday, jurors were shown a chart detailing Tesla’s stock price jump immediately after the disputed tweets. The stock jumped to $379.57 on the day of Musk’s tweet, then fell to $305.50 when it became clear privatization wouldn’t happen.
While Musk had been in talks with Saudi investors to take the company private, no deal ever materialized. But Spiro said Musk didn’t misrepresent having funding, and that raising the necessary funds was “not a problem”, since Musk’s shares in his company SpaceX could have been used to cover any shortfall if necessary.
Although Musk was seriously considering taking Tesla private and could have raised enough funds to do so, the company did not go private because “shareholders wanted to stay public,” Spiro told the jury.
“That was his motive – to do what was right for shareholders,” Spiro continued. “It’s always been for the shareholders.”
He added: “At the end of the day, whatever you think of him, it’s not the ‘bad tweeter’ trial. This is the “Did this man commit fraud” trial.
Earlier in the lawsuit, Spiro said the ‘funding secured’ tweets were a ‘split second decision’ by Musk in response to an article the Financial Times was about to publish about the Public Investment Fund. Saudi Arabia creating a $2 billion stake in Tesla. Musk said he was worried news of the private talks would leak.
The court ordered jurors to assume that Musk’s tweets were false. At issue was whether the shares had caused material harm by misrepresenting the company’s position in a way that might induce a “reasonable investor” to buy or sell Tesla stock.
“When Elon tweets about Tesla, people listen,” Porritt said.
Jurors heard earlier in the trial from lead plaintiff Glen Littleton that he interpreted the tweet to mean the privatization of Tesla was “completely final in my mind”.
Another investor, Tim Fries, bought shares of Tesla at $380, thinking the company would go private at $420, as Musk had suggested in his tweet. “I lost money,” Fries told the jury, saying Musk’s tweet “gave me confidence” that his investment was sound.
Guhan Subramanian, a Harvard Law School professor, testifying on behalf of the plaintiffs, described Musk’s handling of the case as “inconsistent” and an “extreme aberration” in corporate dealings.
The “Funding Secured” tweet has already proven costly for Musk. He and Tesla each paid $20 million to settle a Securities and Exchange Commission lawsuit. Musk also had to step down as chairman of the automaker, although he retained his post as chief executive.
