A jury decided Friday that Elon Musk was not liable for losses suffered by investors after he posted messages on Twitter saying he had obtained the funds to take Tesla private in 2018.
Investors had sued Musk, Tesla and the company’s board, arguing that their statements about their embryonic plan to take the electric car company private had devastating financial consequences for them. But in a federal civil trial in San Francisco over the past three weeks, lawyers for Tesla and Musk, the automaker’s chief executive, argued that he was such a successful businessman that he could have easily obtained financing to take Tesla private. .
Two Musk Twitter posts were at the center of the case. On August 7, 2018, he wrote on Twitter: “I’m considering taking Tesla private at $420. Secured financing.” So he wrote: “Investor support is confirmed. The only reason this is not certain is that it depends on the shareholder vote.” Tesla’s stock price jumped after those posts and then plunged after the proposal fell apart in less than three weeks.
The federal judge in the case, Edward M. Chen, had already ruled that “secured funding” and Mr. Musk’s second statement were untrue, and that Mr. Musk was reckless in publishing them.
The jurors, seven men and two women, deliberated for about an hour and concluded that Musk’s remarks caused no loss to investors. The verdict allows Musk to lay claim to a dark period in his professional life, when Tesla was struggling to ramp up production of his most affordable car, the Model 3.
“I thought he was crazy to try his chances at trial, given what was at stake,” said Adam C. Pritchard, a University of Michigan law professor, pointing to the judge’s pre-trial rulings. “You’re fighting with one hand behind your back in that situation, and yet he won.”
Had he lost, Musk and Tesla could have had to pay billions of dollars in damages to investors who said they lost money when the company’s shares soared after his Twitter remarks and then plunged after his plan. failure.
“Thank God, the wisdom of the people has prevailed!” mr musk posted on Twitterreferring to the verdict, adding that he was “deeply grateful” for the decision.
A lawyer for the plaintiffs, Nicholas Porritt, said in an email: “We are disappointed with the verdict and are considering the next steps.”
After the verdict was read, three jurors answered questions from the plaintiffs’ attorneys. A juror said his arguments were difficult to follow and at times seemed disorganized.
“There was nothing there that would give me an ‘aha’ moment,” he said, later adding: “Elon Musk is a guy who could sneeze and the stock market could react.”
Throughout the trial, lawyers for the investors had argued that Musk knew Tesla was nowhere close to going private because no individual or investment fund had committed specific amounts of money to the deal. There was also no definitive structure for a private Tesla and no clear path to regulatory approval for the plan, the lawyers said.
“This case is about whether the rules that apply to everyone else should apply to Elon Musk,” Porritt said during closing arguments. He added that the stock market “only works because there are rules that keep people honest, so that people can trust market information.”
Musk and Tesla’s legal team had argued that the company’s share price may have moved because Musk said he was considering taking Tesla private, a statement they say was true. They have also argued that funding was actually plentiful, but that Musk did not have the exact numbers because he did not know how many shareholders would want to continue to own shares in Tesla once it was no longer public.
“Funding was not an issue,” said Alex Spiro, a lawyer for Musk and Tesla. He added, referring to Musk, that the deal fell through because “his motive was to do what was right for shareholders.”
A year after Musk floated the idea of taking Tesla private, the company’s share price began to rise as it put its production woes behind it and for a time was one of the best-performing stocks among large companies. Its share price fell 65 percent last year as competition in the electric car market intensified and Tesla cut car prices. But the stock price is up about 50 percent this year.
The case concluded less than four months after Musk acquired Twitter, whose headquarters are half a mile from the federal courthouse in San Francisco.
In 2018, Musk and Tesla settled a separate lawsuit with the Securities and Exchange Commission over their plan to take Tesla private. They paid $40 million in fines to the SEC and Musk agreed to resign as Tesla chairman and allow a lawyer to review some statements about Tesla before Musk posted them on social media. Mr. Musk is currently seeking to have parts of that agreement terminated in the US Court of Appeals for the Second Circuit.
Pritchard, the law professor, said he didn’t think Musk’s victory would lead other CEOs to make off-the-cuff statements that could move stock prices. “Most CEOs will do what their general counsel tells them to do in situations like this,” he said.
Legal experts said most executives and companies would have settled the investor suit. But Musk has often been willing to sue in court. In 2019, a federal jury in Los Angeles decided that he had not defamed a British cave diver by calling him a “fart guy” on Twitter. The two men were involved in a bitter dispute over the rescue of children trapped in a cave in Thailand a year earlier.
A Delaware judge is expected to rule soon on a lawsuit filed by a Tesla shareholder alleging that the company’s board did not act independently of Musk when it devised a lucrative compensation package for him in 2018. The shareholder asked the court to void the payment agreement, which gave Musk the right to acquire nearly $50 billion of Tesla stock.
