Investors who filed suit over Elon Musk’s 2018 tweet stating that he was considering taking Tesla Inc. private are facing a crucial test in court.
(Bloomberg) — Investors who filed suit over Elon Musk’s 2018 tweet stating that he was considering taking Tesla Inc.
private are facing a crucial test in court.
A federal judge in San Francisco will hear arguments Tuesday over whether Musk was intentionally deceitful when he unveiled the proposal to his millions of Twitter followers and said “funding secured.”
The class-action suit is one of several legal issues facing the world’s richest person, who is currently under a court-ordered deadline to complete his $44 billion purchase of Twitter Inc.
by Friday or face a trial in Delaware.
Investors are seeking to hold Musk and Tesla responsible for massive losses they suffered from wild swings in the company’s share price following the tweet on Aug.
7, 2018.
Musk insists investors are wrong to accuse him of manipulating the stock price and maintains that his short-lived plan to take Tesla private was solid based on discussions he had with Saudi Arabia’s Public Investment Fund.
Tesla didn’t respond Monday to a request for comment.
Read More: Tesla Judge Refuses to Silence Musk in Go-Private Tweet Case
Lawyers for shareholders have never publicly revealed how much they’re seeking in damages for hundreds of investors.
A recent court filing by Musk and Tesla cited “billions” at stake.
US District Judge Edward Chen made it significantly easier for the investors to prevail when he ruled in April that the “funding secured” tweet was false and reckless.
To avoid confusing jurors, Chen will likely instruct them that what he’s already decided takes that issue off the table, according to legal experts.
Lawyers for Musk and Tesla are asking Chen to leave it for the jury to decide whether Musk knew he was misleading investors.
“Mr.
Musk’s actual knowledge and state-of-mind remain a live issue in this trial,” the defense lawyers said in a filing.
If the judge agrees, the investors will have less of a head start at the trial than they’ve been counting on.
Adam Pritchard, a professor at University of Michigan Law School, said the question of Musk’s intent behind the tweets — “funding secured,” for example — is intertwined with whether his statements were material, or important enough to influence investors’ decisions.
“‘Secured’ is not a binary question,” Pritchard said.
“There’s no ‘it’s secured’ or ‘it’s not secured.’ There are gradations of secured. The court has said it’s misleading to say it was secured, but was it materially misleading to say it was secured?
I think that’s still in play here.”
As a witness in the trial, Musk will be asked to explain the facts as he knew them at the time, Pritchard said.
Pritchard said he agrees with analysts who have estimated a loss at trial for Musk could cost him and the company more than $1 billion.
‘Weak Sauce’: Elon Musk’s 2018 Feud With Saudi Fund Revealed
That would present another financial challenge for Musk, who has been trying to assemble financing for the Twitter deal.
“Elon has a lot of demands for his cash right now, so it’s really unfortunate timing for him,” Pritchard said.
The case is In re Tesla Inc.
Securities Litigation, 18-cv-04865, US District Court, Northern District of California (San Francisco).
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