A jury ruled Friday that Elon Musk is not liable for investor losses after he posted messages on Twitter saying he had secured funding for Tesla’s 2018 privatization.
Investors had sued Mr Musk, Tesla and the company’s board of directors, arguing that his comments about his embryonic plan to privatize the electric car company had devastating financial consequences for them. But in a federal civil lawsuit in San Francisco over the past three weeks, attorneys for Tesla and Mr. Musk, the automaker’s CEO, have argued that he was such a successful businessman that he could easily have gotten financing to take Tesla privately make.
Two posts on Twitter by Mr. Musk were at the center of the case. On August 7, 2018 he wrote on Twitter: “Considering taking Tesla private for $420. Funding secured.” He then wrote: “Investor support is confirmed. The only reason this isn’t certain is because it’s subject to a shareholder vote.” Tesla’s stock price skyrocketed after these posts, then plummeted after the proposal fell apart in less than three weeks.
The federal judge in the case, Edward M. Chen, had already ruled that “funding secured” and Mr Musk’s second testimony were untrue and that Mr Musk was reckless in releasing it.
The jury – seven men and two women – deliberated for about an hour and determined that Mr Musk’s statements did not cause the investors’ losses. The ruling allows Mr. Musk to seek justification for a dark period in his professional life as Tesla struggled to ramp up production of its most affordable car, the Model 3.
“I thought he was crazy to try his chances at trial considering what’s at stake,” said University of Michigan law professor Adam C. Pritchard, noting the judge’s pretrial rulings. “You’re fighting in this situation with one hand behind your back – and he still won.”
If he had lost, Mr. Musk and Tesla could have paid billions in damages to investors who said they lost money when the company’s stock, he said on Twitter, soared and then plummeted after his plan fizzled out was.
“Thank God the wisdom of the people has prevailed!” Mr. Musk posted on Twitterreferring to the verdict, adding that he “deeply appreciates” the decision.
An attorney for the plaintiffs, Nicholas Porritt, said in an email: “We are disappointed with the ruling and are considering the next steps.”
After the verdict was read, three jurors answered the plaintiffs’ questions from attorneys. A male juror said her arguments were difficult to understand and sometimes seemed disorganized.
“There wasn’t anything that gave me an ‘aha’ moment,” he said, later adding, “Elon Musk is a guy who could sneeze and the stock market could react.”
Throughout the process, the investors’ lawyers had argued that Mr Musk knew Tesla was nowhere near going private as no individuals and investment funds had committed specific amounts of money to the deal. There is also no final structure for a private Tesla, nor a clear path to regulatory approval of the plan, the lawyers said.
“In this case, the issue is whether rules that apply to everyone else should apply to Elon Musk,” Mr. Porritt said during the closing arguments. He added that the exchange “only works because there are rules that keep people honest so people can trust the information in the market.”
Mr Musk and Tesla’s legal team had argued that the company’s stock price may have moved because Mr Musk said he was considering taking Tesla private, a statement they say is true. They’ve also argued that while funding is actually plentiful, Mr. Musk doesn’t have exact numbers because he doesn’t know how many shareholders would want to continue owning shares in Tesla if it went public.
“Funding wasn’t an issue,” said Alex Spiro, an attorney for Mr. Musk and Tesla. Referring to Mr. Musk, he added that the deal fell through because “his motive was to do what was right for shareholders.”
A year after Mr. Musk floated the idea of taking Tesla private, the company’s stock price began to rise as it emerged from its manufacturing woes and was one of the best-performing stocks among major companies for a time. The share price plummeted 65 percent last year as competition in the electric car market intensified and Tesla slashed car prices. But the stock price is up about 50 percent this year.
The case ended less than four months after Mr. Musk took over Twitter, whose headquarters are half a mile from federal court in San Francisco.
In 2018, Mr. Musk and Tesla settled a separate lawsuit with the Securities and Exchange Commission over his plan to make Tesla private. They paid $40 million in fines to the SEC, and Mr Musk agreed to step down as Tesla’s chairman and allow an attorney to review some statements about Tesla before Mr Musk released them on social media. Mr. Musk is currently seeking to terminate portions of this Agreement in the US Court of Appeals for the Second Circuit.
Mr Pritchard, the law professor, said he didn’t think Mr Musk’s win would persuade other chief executives to make spontaneous 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 have settled the investors’ lawsuit. But Mr. Musk has often been willing to take lawsuits to court. That was decided by a federal jury in Los Angeles in 2019 he did not defame any British cave diver by calling him a “pedo guy” on Twitter. The two men were locked in a bitter argument a year earlier over the rescue of children trapped in a cave in Thailand.
A judge in Delaware is expected to rule on a lawsuit soon brought in by a Tesla shareholder who argues that the company’s board did not act independently of Mr. Musk in crafting a lucrative compensation package for him in 2018. The shareholder has asked the court to set aside the wage agreement that gave Mr Musk the right to purchase nearly $50 billion of Tesla stock.
