Jan 17, 2023 - Economy & Business

What's at stake for Musk in shareholder trial over 2018 Tesla tweets

Elon Musk during a SpaceX presentation in Boca Chica, Texas, in February 2022.

Elon Musk during a SpaceX presentation in Boca Chica, Texas, in February 2022. Photo: Jonathan Newton/The Washington Post via Getty Images

Elon Musk will try to defend himself against claims of securities fraud over 2018 tweets saying he had secured funding to take Tesla private in a trial that began this week in a San Francisco federal court.

The big picture: The trial comes at a perilous time for Musk and Tesla, which missed its goal of achieving 50% growth year-over-year in 2022 and has recently drastically cut vehicle prices. It also comes after Musk's chaotic first few months as CEO of Twitter, which he acquired for $44 billion.

  • Tesla's stock price has also recently plummeted, experiencing a dramatic 65% plunge last year, though it is still much higher than when Musk tweeted in 2018.
  • Musk faces a separate trial stemming from a lawsuit brought by another Tesla shareholder over his multi-billion dollar pay package in 2018.

How we got here

Musk abruptly claimed in a series of tweets in August 2018 that he had secured enough funding to take Tesla private at $420 per share.

  • The company's stock spiked on Musk's tweet, but then sank after his proposal came to nothing and he backtracked on it.
  • Musk was later sued by the U.S. Securities and Exchange Commission, which accused him of knowingly making false and misleading statements.
  • In September 2018, Musk settled the SEC lawsuit, agreeing to step down as Tesla's chairman, while remaining as CEO.
  • He also agreed to pay a $20 million penalty, and comply with procedures on future communications related to the company. Yet, he did not have to admit to or deny the SEC's allegation.
  • Musk, who may have identified his potential successor as Tesla's CEO, has denied wrongdoing in public and court statements, claiming he was coerced into making the deal with the SEC, but an attempt to have the deal scrapped failed last year.

What's going on with the 2023 trial

The trial started on Jan. 17, 2023 with jury selection in U.S. District Court in San Francisco.

  • Investors who brought a class-action lawsuit claim Musk had not in fact lined up the money to take Tesla private in 2018.
  • Investors accuse Musk for allegedly committing securities fraud, claiming he knew he did not have the funding to take the company private when posting the 2018 tweets but did so as an attempt to manipulate Tesla's stock price and ruin plans for short-sellers.
  • U.S. District Judge Edward Chen, who is hearing the case, ruled in a pre-trial judgment last year that Musk's statements were inaccurate and reckless, significantly damaging his and Tesla's legal defense.
  • Musk recently lost his bid to have the trial moved out of San Francisco, claiming negative local news coverage has made potential jurors biased against him.

What's at stake for Musk and Tesla

Musk and Tesla may be forced to pay billions of dollars in damages to investors if a jury finds he knew the statements were false and caused financial harm to company shareholders.

  • The trial comes at a time when shareholders are losing faith in Musk and it is expected to shed some light on his management style from a witness lineup that includes top Tesla executives and Silicon Valley stars, such as Oracle co-founder Larry Elison and James Murdoch, the son of media mogul Rupert Murdoch, per AP.
  • The trial may also shed light on Musk’s relationship with his brother, Kimbal, who is also on the list of potential witnesses.

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