The head of Tesla and Twitter, Elon Musk, is facing multi-billion dollar losses resulting from a lawsuit that will be going to trial this week in which shareholders of the electric vehicle manufacturers are claiming compensation for his reckless statement that he had secured the required funding to take the company private.
The proceeding will consist of a 10-day trial within the US District Court for the Northern District of California in which a jury panel will determine if Musk’s statements back then hurt Tesla (TSLA) shareholders financially.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
The statements in question include a tweet published by Musk where he claimed that he was taking the automaker private for $420 per share. These claims were considered unsubstantiated as Musk did not have the funds to complete such a transaction at the time.
Judge Already Ruled that Musk’s Claims Were False and Misleading
Back in May 2022, Judge Edward Chen from this same District Court asserted that Musk knew that these statements were false and misleading back when he wrote the tweet. However, he declined to provide a summary judgment on the question of whether the statements caused losses to investors.
Aside from the infamous “funding secured” tweet published by Musk in August 2018, the billionaire founder of SpaceX later stated in another tweet that he had already secured investors’ support and that the only obstacle to completing the operation was shareholders’ votes.
Both statements were considered false and misleading by Judge’s Chen summary ruling and the jury will be aware of this judgment once the trial begins.
“Based on the evidence of record, the Court finds that no reasonable jury could find the statement “Funding secured” accurate and not misleading. The evidence of record shows that there was nothing concrete about funding coming from the PIF [the Saudi Arabia government’s Public Investment Fund]; rather, discussions between Tesla and the PIF were clearly at the preliminary stage”, the summary ruling reads.
It continues: “There had been no discussion about what the purchase price would be for a share of stock. Nor had there been any discussion about what percentage of the company the PIF would own or the total amount of money the PIF would contribute”.
How Much Will Elon Musk Pay to TSLA Stockholders?
The lead plaintiff of the class-action lawsuit, Glen Littleton, has commented that he is seeking compensation for “the turmoil in the prices for Tesla stock, options, and bonds caused by Musk and Tesla’s statements, investors lost billions of dollars from August 7, 2018 to August 17, 2018”
He added: “These damages include losses resulting from the effect on the prices of Tesla securities immediately following the August 7, 2018 tweets, that was then corrected from August 8, 2018 to August 17, 2018 as the falsity of the tweets was realized by investors… Absent Musk and Tesla’s fraudulent statements, these losses would not have been suffered by Tesla investors”.
Also read: EV Stocks Fall amid Signs of Price War after Tesla Cuts Car Prices
According to legal experts, the summary judgment along with proof that Musk’s conversations with the Saudi Arabia Public Investment Fund (PIF) did not result in any commitment from the country’s authorities to provide funding for the transaction, increase the likelihood that he will lose the trial.
“Elon’s going to lose, and he’s going to lose for a significant amount. We’re just talking about exactly how much”, law professor Robert Miller said to tech magazine Ars Technica. Several other experts agree with Miller’s assessment.
Littleton is reportedly seeking compensation for damages amounting to $66.67 per share as he claims that this is the amount that Tesla shareholders lost as a result of the CEO’s reckless statements.
In cases like this, the defendants typically settle for a fixed amount to avoid going to trial. However, Musk will likely let things drag out to postpone payment. The amount that he will have to disburse is unclear but it could be hundreds of millions of dollars depending on the jury’s decision as there were more than 170 million Tesla shares in circulation at the time he made the statements.
Moreover, the class action led by Littleton includes options traders and short sellers who were also affected by the erratic price movements that resulted from Musk’s claims.
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