The trials of Elon Musk

Elon Musk and Tesla were found not liable for investors’ losses after Musk tweeted in 2018 that funding had been secured to take Tesla private, in a class-action lawsuit that was much watched because of its high-profile defendant. It marked the second time in recent months that Musk appeared in court to defend himself as CEO of Tesla, at a time when the company’s investors have increasingly expressed concerns about Musk’s leadership.

The verdict proved yet another twist in a months-long public debate about the billionaire’s impetuous, often contentious behavior, especially on Twitter. The trial, in the end, revealed as much about how he views his Twitter habits as it did about how he ran the EV company.

For the past several weeks, Musk has defended himself against the lawsuit over a tweet he posted on August 7, 2018: “Am considering taking Tesla private at $420. Funding secured.” The stock price, which had hovered above $340 when the markets opened that day, swung up as shareholders envisioned a tidy profit when the buyout was complete. A little more than a week later, when Musk said going private was a no-go in a New York Times interview, the price fell.

Shareholders quickly sued Musk, Tesla, and company directors for securities fraud, alleging that Musk had known his tweets were false and that they had cost them billions of dollars. The lawsuit alleged that Musk had not discussed a specific $420-per-share price with would-be buyers. During the trial, which began in the Northern District of California on January 17, Musk and Tesla argued that the tweets had not been false, merely incomprehensive — and that Musk, at the time, had fully believed investors that would fund the move would pull through.

A nine-person jury in a California courtroom reached the verdict in just a few hours. The jury had been asked to find whether Musk and Tesla managed to prove their claims separately. If any of the defendants were found liable, they also would have had to determine how much Tesla’s stock price had been artificially inflated on each day between August 7 and August 17. In the end, jurors determined neither the mercurial billionaire nor the electric car company owed investors a dime.

The 2018 tweet had already proven troublesome for Musk and Tesla. The Securities and Exchange Commission sued Musk for securities fraud in connection with the missive in 2018; he and Tesla settled and were ordered to pay a $40 million penalty, and Musk was required to step down as chair of the Tesla board for three years. His SEC settlement didn’t just come with a monetary penalty — he agreed that his tweets about Tesla would be internally reviewed going forward. Musk, who has treated the SEC with contempt, says he was coerced into agreeing to this particular leash. Last year, his lawyer wrote in a court filing that the order existed to “chill his exercise of First Amendment rights.”

The lead plaintiff representing shareholders was Glen Littleton, a 71-year-old Missouri investor who says he bought Tesla stock after the “funding secured” tweet under the belief that the price would go up. But when the take-private didn’t happen, Littleton argued, he lost millions. An expert witness for the plaintiffs estimated that Tesla investors — not just those who bought or sold Tesla securities between August 7 and August 17 — lost $12 billion in the 10 days between the tweet and the revelation that the deal would not be taking place. The lawsuit sought damages reported to be in the billions. The plaintiffs argued not only that Elon Musk was liable for making fraudulent tweets, but that Tesla as well as its then-board directors (a group that includes Musk’s brother Kimbal and James Murdoch, son of Fox News media mogul Rupert) were also liable for failing to stop Musk from disseminating false information that harmed shareholders.

The lawsuit was a test of whether Musk would be held accountable for making statements that potentially impact markets on Twitter — a platform he now owns, which he has championed for its importance as a free speech haven. After the verdict, Musk tweeted, “Thank goodness, the wisdom of the people has prevailed!”

“Funding secured” — or was it?

During his multi-day court testimony, Musk maintained that what he had tweeted had been the truth, and that he had essentially been thrown under the bus by Saudi Arabia’s Public Investment Fund (PIF), which he said was prepared to provide funding for a buyout. The deal was all but inked, he argued, when he tweeted in August 2018 that the only remaining hurdle was a shareholder vote. He also told the court that he wanted to get ahead of a Financial Times article reporting that the Saudi fund would acquire a 3 to 5 percent stake in Tesla. Deepak Ahuja, former chief financial officer at Tesla, testified that both he and Musk believed the Saudi PIF would fund the entire buyout. “If they say they’re going to do something, they do it,” Musk said in court. The PIF, he argued, had backed out of the deal.

Part of Musk’s defense was also that what’s said on Twitter is often taken with a grain of salt. His argument was that people who read his “funding secured” tweet would have understood the context of the medium — “that this is a very brief statement on Twitter that can’t be fully explained [and that] nobody believes what they read on Twitter exactly,” explained Ann Lipton, a law professor at Tulane University.

“Just because I tweet something doesn’t mean people believe it or act accordingly,” Musk — new CEO of Twitter, longtime CEO of Tesla and SpaceX — told the courtroom in late January. His testimony downplayed the reach and power his words have on the site that he paid $44 billion to own, where he has over 127 million followers.

In the SEC’s 2018 complaint against Musk, the agency contended that he hadn’t specifically discussed price with potential investors. In court, Musk said that though there was no written agreement, he didn’t need one to be confident about funding. When asked whether he had set a specific price with the Saudi representatives, Musk said he had not. A court motion filed in April 2022 revealed that Musk had one conversation with the Saudi PIF before the August 7 tweet. Making the case even more difficult to parse, the governor of the Saudi fund, Yasir Al-Rumayyan, refused to testify in the case. Musk’s lawyers attempted to subpoena him, but the PIF’s lawyers argued that Al-Rumayyan isn’t legally obligated to testify in the California court.

Musk tweeted, and Tesla prices shot up

Musk and his legal team argued that it is hard to say whether his tweets had caused wild swings in Tesla’s stock value, because market behavior can be “counterintuitive.”

A report prepared by one of the plaintiffs’ expert witnesses, economic consultant Michael Hartzmark, noted that Tesla’s value shot up by almost 11 percent on August 7, the day of the “funding secured” tweet. Hartzmark’s report said that this was an abnormal return of statistical significance. A day after the Times interview with Musk, on August 17, Tesla’s closing price was just under 9 percent lower than the previous day’s close. Third-party analysts have also observed that immediately after Musk’s tweet, Tesla’s trading volume increased tenfold — and trading was temporarily halted.

“If these investors purchased the stock at a price that was too high, which eventually did come back down in the near term, and then sold, then that purchase was made on false information,” said Josh White, a Vanderbilt University finance professor and former SEC economist.

Experts, however, told Vox that it was extremely unusual for a class-action securities case to go to trial. When it does, it’s usually because the plaintiffs’ case is extremely weak and the defendant is confident they can win — otherwise, companies almost always settle. The fact that Musk and Tesla chose to take their chances in court is itself remarkable.

“I’m sure he has many reasons for going to trial — although it’s really, really rare,” said David Rosenfeld, a securities law professor at Northern Illinois University. But being able to defend his 2018 tweets was likely one major benefit. “He’s using this, basically, as a public forum to vindicate himself.”

And Musk has insisted the information in this case was legitimate. “The tweets are truthful,” he said in his testimony, contending that he was merely unable to be comprehensive in his tweets given the character limit.

Musk’s lawyer, Alex Spiro, argued that the tweets contained only “technical inaccuracies.”

What does “technically inaccurate” mean?

A slightly more credible argument, Lipton told Vox, was that any inaccuracies in Musk’s tweets didn’t really matter.

Before the trial began, the court had already ruled that Musk’s August 7 tweets were false and made recklessly. This was important, because in a fraud case, the plaintiff has to show either that the defendant intentionally committed fraud or that they acted recklessly. It was a leg up for the plaintiffs in this case that the jury was instructed to accept as fact that Musk had tweeted falsely and recklessly.

“Musk’s chief defense is ‘All right, it might have been technically false but spiritually true,’” said Lipton. And the plaintiffs weren’t attempting to prove whether Musk’s tweets were false — the court had already established that they were — but that what the tweets misstated was directly tied to the shareholders’ losses. The defense’s argument is that “the undisclosed facts — that is, what the market did not know about this arrangement — were immaterial,” explained Lipton. They would have lost money anyway, or so the argument goes.

Tesla investors to CEO: Please stop tweeting

A central facet of the trial wasn’t just the “funding secured” tweet, but Musk’s well-documented habit of tweeting impulsively and without restraint. Plaintiffs’ lawyers argued that his past Twitter statements have revealed information that should not have been public, affected markets, and harmed shareholders. Several Tesla shareholders and others involved with the company testified that they had attempted to get him to stop tweeting (requests that he ignored).

His manner of communicating brusquely became evident during his testimony, too. He occasionally gave defiant answers to the plaintiffs’ lawyers, resisting offering a yes or a no. At times his responses were stricken from the court record for being irrelevant or inappropriate. Nicholas Porritt, a lawyer for the plaintiffs, for example, asked whether Musk would agree that he had lost money for an investor who had bought Tesla stock on August 8 believing in the truth of Musk’s tweets, only for the price to fall when it was revealed that funding wasn’t secured.

“Your question contains falsehoods,” Musk replied.

Musk has made it abundantly clear that he believes his personal Twitter account is a place where he should be able to express himself freely. Musk’s MO on Twitter often blurs the line between earnestness and shitposting. At times, what he says on the site is to be taken seriously — it’s a direct line of communication between Musk and anyone who wants to keep up with him and his companies. He shares updates and rebuts news reports via Twitter. More recently, Musk has extolled Twitter’s ability to be a better source of news than “old-school media” with less bias. “Twitter is arguably already the least wrong source of truth on the Internet, but we obviously still have a long way to go,” Musk tweeted recently.

Yet Musk also sometimes insists that his own tweets shouldn’t be taken at face value. In a defamation lawsuit in which a diver involved in the 2018 Thai cave rescue sued Musk for calling him a “pedo guy” on Twitter, his lawyers argued that Twitter is hyperbolic and no reasonable person would rely on it as a source of facts.

Shades of that argument appeared in this trial as well, highlighting Musk’s tricky, tangled relationship with the social media site, where he’s been a prolific tweeter for more than a decade, and where he has sowed chaos over the past several months through mass firings and haphazard changes that have led to an exodus of advertisers and a rise in hate speech. On the one hand, Twitter has provided a handy platform for Musk to share his views and news about his companies; his off-the-cuff Twitter persona helped grow his fan base, which has bolstered Tesla’s popularity and stock value. On the other hand, Musk’s habit of impulsive tweeting keeps landing him in hot water.

Despite these legal troubles, Musk has continued to tweet.