Elon Musk, the CEO of Tesla and the former richest man in the world, started his long-awaited Tesla trial this week. The case revolves around Musk’s infamous “funding secured” tweet from August 2018 in which he claimed to have secured the funding needed to take Tesla private at $420 per share. Investors in Tesla who are suing the billionaire claim that those promises, which never came true, were “indisputably untrue” and caused them to collectively lose millions of dollars.
Musk, who is already losing money, would be required to pay billions of dollars in damages if the jury returns a negative verdict. Just a few months prior, he was forced to pay $44 billion for a social network firm that he didn’t appear to be particularly interested in actually owning.
You may see Elon Musk’s funding-secured tweet below.
Shareholders could either to sell at 420 or hold shares & go private
— Elon Musk (@elonmusk) August 7, 2018
A lawyer for the Tesla investors alleged Musk outright “lied” when he claimed to have secured the funds to take the electric vehicle manufacturer private during their opening arguments on Tuesday. They assert that these lies caused stockholders to suffer damages of millions of dollars.
On the other hand, Musk’s lawyer attempted to persuade the jury that the CEO just used the “wrong words” when making split-second decisions (apparently over and over again) and genuinely would have kept his promise had he not run into resistance from shareholders.
Extreme transparency claims on Tesla trial
Alex Spiro asserted that Musk’s hasty attempt to disclose his objectives to stakeholders in an act of extreme transparency was what led to his verbal slip-up.
“In his mind, funding wasn’t an issue. It was secured. But what he said in that tweet was ‘funding secured’ without elaborating on what that meant to him. He could have, should have said funding wouldn’t be an issue,”
“He rushed and in his rushed, reckless state, he tweeted the wrong word choice,”
– Alex Spiro
The lawyer claimed that any significant increases in Tesla’s stock price were due to Musk’s purportedly sincere declaration that he intended to take the business private, not to Musk’s claims in his tweets that he had finance secured.
Why are we seeing a Tesla trial?
The case that gave rise to this week’s Tesla trial was a 2018 class action lawsuit brought by Tesla investors who contended that the CEO’s “Funding secured” tweet and subsequent remarks caused them to lose money and misled them. Despite Musk’s numerous assurances, including this post on the official Tesla blog.
Tesla evidently never went private. However, Tesla’s stock prices did increase in the days that followed Musk’s promise before falling back down once it became evident that the rumored $72 billion takeover was really empty rhetoric. In their case, the burned investors claim Musk should be held accountable for their lost money.
Musk has already settled a separate lawsuit over the tweets by paying fines to the Securities and Exchange Commission, which accused him of making “false and misleading representations” in addition to defying rules. Musk and Tesla each agreed to pay separate $20 million fines as part of that settlement. Musk also agreed to resign for at least three years as chairman of Tesla, adding insult to injury.
Following the settlement, the SEC stated that Musk’s funding representations “lacked an appropriate foundation in fact” in a news release. For his part, Musk believes that he entered the settlement under financial duress and that he actually did mistakenly think he had obtained funds from Saudi Arabia’s Public Investment Fund.
Elon Musk’s tweets will be reviewed
The additional demands Musk had to obtain prior consent for certain tweets may have annoyed Musk more than the penalties. The Tesla trial compels Musk to have Tesla lawyers review his Tweets if they might contain information about the company’s finances, production or sales figures, forecasts, or secret legal or regulatory filings. These conditions upset Musk to the point where his attorneys last year filed a brief with the 2nd U.S. Circuit Court of Appeals asking for the provision, which they referred to as a “government-imposed muzzle”, to be completely thrown out.
Tesla is undoubtedly going through one of its most difficult times in recent memory as Musk enters the Tesla trial. Despite years of tremendous development, Tesla has had to contend with an increase in EV competition from other startups and established automakers.
Tesla’s stock performance in 2022 was its lowest to date because of investor skepticism regarding its ability to maintain its supremacy. According to the Associated Press, such falls destroyed a reported $700 billion in shareholder capital. Meanwhile, inconsistent rules at the recently acquired Twitter have apparently severely damaged Tesla investors’ faith in the CEO.
Before the Tesla trial, Musk hasn’t exactly exuded much confidence. Just this month, Musk’s attorneys made an attempt to claim that the San Francisco jury was unduly predisposed against him due to the billionaire’s past reputation and the effects of recent large layoffs at Twitter.
Musk requested that the Tesla trial be transferred to Texas, where he believed that fewer jurors would find him unpleasant. Musk’s argument was dismissed last week by federal judge Chen, who expressed confidence that an impartial jury could be found.
We will keep you updated on the Tesla trial.