Elon Musk is on trial in a securities fraud trial over tweets from 2018 in which he raised the possibility of taking Tesla Inc. private, with personal jury selection scheduled to begin Tuesday.
The class action lawsuit originated at a tweet dated August 7, 2018 in which the CEO of Tesla TSLA -0.94% said: “I am considering privatizing Tesla for $420. Funding secured.”
One investor, Glen Littleton, sued Tesla, Mr. Musk, and Tesla’s then-board members, alleging that Mr. Musk’s tweets were false and cost investors billions by causing price fluctuations in Tesla stock, options, and bonds. In court filings, Mr Musk said he was indeed considering taking Tesla private and believes he has the support of Saudi Arabia’s sovereign wealth fund to do so. The deal, which would have been valued at around $72 billion, never materialized.
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US District Judge Edward Chen, who is overseeing the San Francisco jury trial scheduled to run until February 1, has ruled that Mr Musk’s tweets about the company’s privatization were untrue and that he acted recklessly in rejecting them created.
Questions to the jury include whether Mr Musk’s tweets were meaningful to investors and whether he knew they were untrue.
The case is unusual in that securities fraud cases are usually resolved before going to court, such as through a settlement, said Jill Fisch, a professor of securities law at the University of Pennsylvania. The defendants in this case face “an uphill battle” given the judge’s pre-trial decision on the veracity of Mr Musk’s statements, she said.
Lead plaintiff’s attorneys did not respond to a request for comment, nor did an attorney for Tesla, Mr. Musk and the other board members.
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Mr Musk is expected to comment as early as Wednesday, about two months after he did so in Delaware in a lawsuit over his pay package at Tesla. He also appeared in Delaware Commercial Court in 2021 to oversee Tesla’s roughly $2.1 billion acquisition of solar company SolarCity Corp. to defend in 2016.
Also on the list of possible witnesses are Tesla CEO Robyn Denholm, board members Ira Ehrenpreis, James Murdoch and Kimbal Musk – the CEO’s brother. The head of investor relations, Martin Viecha, can also be called.
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This week’s trial comes at a busy time for Mr. Musk, who has been scrambling to flip Twitter Inc. after buying the social media company in a $44 billion deal last fall. His rocket company, SpaceX, is pushing for the first orbital launch of a new rocket that Mr. Musk plans to use for space missions.
Tesla, meanwhile, has slashed prices across its lineup of vehicles, with some of last week’s cuts hitting nearly 20% in the U.S. to meet demand. The company’s shares are down about 70% since their November 2021 peak, losing roughly $850 billion in market value. According to the Bloomberg Billionaires Index, Mr Musk’s personal wealth has fallen by more than $200 billion in that time.
Legal proceedings involving Mr. Musk can be hectic. In the SolarCity case, for example, Mr. Musk called opposing counsel a “bad person.”
Tesla has cut prices across its lineup of vehicles to boost demand.
Photo: Jay Janner/USA TODAY NETWORK/Portal
Ahead of this week’s trial, Mr Musk asked the court to move the trial to Texas because potential jurors in San Francisco could be biased against him. Judge Chen denied the request.
“It doesn’t seem that difficult to find 15 people,” he said.
The court needs nine jurors and six alternates to proceed with the case. Around 190 prospective judges were asked to fill out questionnaires about their opinions on Mr. Musk and other issues. The court wants to summon about 50 of them for further questioning on Tuesday.
Opening arguments could begin as early as Tuesday after the jury has been selected.
The lead plaintiff is seeking damages for investor losses it allegedly traces back to Mr Musk and Tesla’s testimonies. Tesla stock closed up 11% on the day Mr Musk first tweeted about Tesla’s possible privatization, later gave back all those gains, and fell further as questions surfaced about the deal.
The defendants have said the plaintiff will not be able to prove to a jury that the statements were materially false. Mr Musk is considering taking Tesla private, defendants said, although some of his claims about the deal may not have been literally accurate.
Defendants said in a court brief that Mr Musk believes he secured support to privatize the automaker from Saudi Arabia’s sovereign wealth fund, the Public Investment Fund. A lawyer for the defendants said Friday his team chose not to pursue subpoenas asking fund representatives to testify. The sovereign wealth fund did not respond to a request for comment.
Mr. Musk and Tesla each agreed in 2018 to pay $20 million to settle civil claims brought by the Securities and Exchange Commission over the same tweets. Mr Musk also agreed to step down as chairman of the company while remaining CEO. He later said in court filings that he felt pressured to settle with the SEC. Last year, a federal judge denied Mr Musk’s request to scrap his settlement.
Write to Rebecca Elliott at [email protected] and Meghan Bobrowsky at [email protected]
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