No Home Court Edge for Musk in 'Funding Secured' Trial

Tesla's CEO risks a verdict worth billions as a shareholder suit goes to trial in San Francisco, where Musk's management of Twitter has made him unpopular

Elon Musk shrugging while giving two thumbs up on a red carpet.
Photograph of Elon Musk shrugging.

Getty / Britta Pederson

Jury selection is under way in a class action suit accusing Tesla (TSLA) CEO Elon Musk of recklessly harming shareholders when he wrongly claimed to have secured a Tesla buyout in 2018.

Musk has already suffered several pre-trial defeats in the case, including Friday, when U.S. District Judge Edward Chen rejected a request by Musk's lawyers to move the trial to Texas from San Francisco because of bad publicity the tycoon has received since buying San Francisco-based Twitter in October.

Earlier, Chen ruled Musk's tweet claiming to have secured funding for a transaction taking Tesla private was reckless as well as false. The judge plans to share that ruling with the jurors at the trial's outset, rejecting as recently as last week claims by Musk's lawyers that doing so could be "highly prejudicial" to his defense.

Key Takeaways

  • Jury selection began Tuesday in a class action lawsuit alleging Tesla CEO Elon Musk harmed the EV maker's shareholders when he tweeted in 2018 that funding was secured for a buyout.
  • The judge has already ruled the tweet was false and reckless, and will inform jurors of the ruling at the outset of the trial.
  • Musk argues he believed a deal was done, and plaintiffs seeking compensation for the stock's slump over 10 days after the tweet will have to prove otherwise.
  • Tesla shares fell 65% in 2022 but remain far above their price at the time of Musk's 2018 tweet.

Tesla shares rose 11% the day of Musk's tweet only to drop 20% over the next 10 days as it became clear no buyout was forthcoming. The price swing cost Tesla's shareholders $14 billion, according to the plaintiffs.

At issue in the trial is whether Musk realized no deal had been struck, and whether his tweets about the buyout were material for investors. Musk has said he believed a deal was done based on discussions with the Saudi sovereign wealth fund. Subsequent court filings showed the head of the fund texted Musk days after the tweet suggesting that no agreement had been reached. While the Saudi official has refused to testify in the case, Musk's lawyers have named Oracle (ORCL) founder and major Tesla shareholder Larry Ellison as well as executives from Goldman Sachs (GS), Morgan Stanley (MS), and the private equity firm Silver Lake Management as possible witnesses who may testify about the privatization talks.

Separately, Musk is still seeking to overturn his 2018 settlement with the U.S. Securities and Exchange Commission (SEC) over the tweet, under which Musk and Tesla paid $20 million each in penalties. Musk also agreed to step down as Tesla's chair, to appoint additional independent directors, and to have drafts of his tweets material to Tesla shareholders reviewed by company executives before posting. Musk has said he was forced to agree to the settlement because of a funding crunch at Tesla, and claims the provisions infringe on his freedom of speech. He is appealing a U.S. district court's refusal to overturn the settlement.

Tesla shares slumped 65% in 2022, costing shareholders $700 billion, as Musk sold nearly $40 billion in stock and spent time buying and shaking up Twitter. Tesla deliveries fell short of the company's projections as demand slowed in the second half of the year. The stock has fared better so far in 2023, up nearly 7% on the year after a gain of more than 7% Tuesday, despite losing 12% in the year's first trading session.

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  1. Associated Press. "Elon Musk Rebuffed in Bid to Move Tesla Tweet Trial to Texas."

  2. Reuters. "U.S. Judge Says Musk Recklessly Tweeted That 'Funding Secured' for Taking Tesla Private."

  3. Elon Musk on Twitter. "Am Considering Taking Tesla...." 

  4. Bloomberg. "Elon Musk’s Tesla Tweets Could Cost Him Billions More — in Court."

  5. Associated Press. "In Court Brief, Musk Says the SEC Is Unlawfully Muzzling Him."

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