A tweet from Elon Musk declaring he had the funding to take Tesla private in 2018 caused billions of dollars in investor damage after the deal fell through, according to estimates presented Tuesday at a court hearing in which the arbitrary handling of the takeover proposal was investigated.
The stunning estimates were prepared by two experts hired by lawyers Tesla Shareholders underscored the challenges facing a nine-person jury when the three-week trial ends this week. US District Judge Edward Chen expects to return the case to a jury on Friday.
Depending on the verdict, Musk and the electric carmaker he runs could face further financial consequences for his unpredictable behavior Twitter platform he now owns. Without acknowledging any wrongdoing, musk and Tesla reached a $40 million (about Rs.330 million) settlement with securities regulators in August 2018 following Musk’s annoying tweets.
In this class action lawsuit on behalf of Tesla shareholders, the jury must first determine whether two tweets Musk posted out of the blue on August 7, 2018 misled Tesla investors. If the jury decides to hold Musk accountable for the tweets that Chen has already claimed are untruths, they will face an even more daunting task — trying to calculate how much Musk — one of the richest people in the world — and Tesla have to pay for the misleading tweets.
One of Tuesday’s two experts, economist Michael Hartzmark, reviewed a report peppered with terms like “but for it” and “follow-on inflation” that advocated calculating the damage Tesla shareholders suffered over a 10-day period in August 2018 between $4 billion (approx. Rs. 32,700) to $11 billion (approx. Rs. 90,000 crore) or $22.55 (approx. Rs. 1,800) to $66.67 (approx. Rs. 5,500 ) per Tesla share at that time.
Another expert, University of Maryland finance professor Steven Heston, reviewed an even more extensive report that analyzed the impact of Musk’s tweets on more than 2,000 types of Tesla stock options, relying largely on a formula known as the Black-Scholes model, which is widely used by companies to evaluate executive compensation packages.
When questioned by a Musk attorney about the reliability of his model, Heston admitted, “All models deviate from reality, which is why they are models.”
Heston, who said he was paid anywhere from US$300,000 (about Rs.2.5 crore) to US$350,000 (about Rs.2.8 crore) for his work in the case, declined to attempt a specific estimate the damages for investors and said it was a jury job.
The crux of the case hinges on an Aug. 7, 2018 tweet in which Musk stated that he had “secured funding” to take Tesla private. Musk posted the tweet just before boarding his private jet, after being warned that the Financial Times was about to run a story that the Saudi Arabia Public Investment Fund had lost about $2 billion (approx diversify its interests beyond oil.
Amid the widespread confusion over whether Musk’s Twitter account was hacked or if he was just joking, Musk tailed off a few hours later with another tweet indicating a deal was imminent.
During the approximately eight-hour testimony, Musk repeatedly insisted that he represented the best interests of shareholders and believed he had a funding commitment from the Saudi fund, which was revoked after his “funding secured” tweet. Musk also testified that he could have managed the buyout by raising money from other investors and selling some of his shares SpaceXa missile ship manufacturer he founded.
After consulting with Tesla’s major shareholders, Musk decided that the electric-car maker should remain publicly traded — a decision that has worked out well for him and other investors. Tesla shares are now worth more than eight times what they were at the time of Musk’s buyout tweet, after adjusting for two stock splits that have taken place since then.
