Photo: Dimitrios Kambouris (Getty Images)
Tesla CEO and former world’s richest man Elon Musk began a long-awaited lawsuit this week centered around his fateful August 2018 “funding secured” tweet, where he claimed to have successfully raised the necessary funding to going private Tesla at $420 per share. Tesla investors fighting the billionaire say those promises, which never materialized, were “unequivocally false” and ended up costing them millions in losses. If the jury finds against Musk, the already bleeding CEO could be forced to pay billions in damages. Those sanctions would come just months after he had to cough up $44 billion for a social media company he appeared to have little interest in owning.
During their opening arguments on Tuesday, a lawyer representing Tesla’s investors said Musk flatly “lied” when he claimed he secured the financing to take the electric car company private. These lies, they claim, have resulted in millions of dollars in losses for shareholders. Musk’s attorney, on the other hand, tried to convince jurors that the CEO simply used the “wrong words” during split-second decisions (apparently over and over again) and would indeed have followed through on the promise had he not met pushback from shareholders.
“You’re going to learn very soon that this is not a scam, not even close,” Alex Spiro, Musk’s lawyer, said, according to Reuters.
Spiro claims that the mumbling in Musk’s mouth was caused by his mad rush to inform stakeholders of his intentions in an act of extreme transparency. “He rushed in and in his hasty, reckless state he tweeted the wrong choice of word,” Spiro said, according to Arstechnica. “According to him, funding was not a problem. It was secured. But what he said in that tweet was “funding secured,” without clarifying what that meant to him. He could, should have said that funding would not be a problem,” Spiro continued. Any sudden rise in Tesla’s stock price, the lawyer argued, followed Musk’s supposedly good-faith statement that he intended to take the company private, and especially not in response to Musk’s tweets purporting to secure financing.
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Nicholas Porritt, the attorney representing Glenn Littleton and other Tesla investors, painted a diametrically opposed picture.
“Why are we here?” Porritt asked the jury, according to the Associated Press. “We’re here because Elon Musk, the chairman and CEO of Tesla, lied. His lies caused ordinary people like Glenn Littleton to lose millions upon millions of dollars.
A panel of nine jurors will ultimately decide which version of Musk — a lying con man or an over-eager, careless tech visionary — wins the day. Those jurors, selected early Tuesday by District Court Judge Edward Chen, apparently appeared mostly impartial and did not include a number of individuals who had strong opinions about the CEO. One of those sidelined candidates, Reuters noted, said they thought Musk was “a bit off the mark,” while another described him as a “smart, successful pioneer.”
Musk himself is expected to take the witness stand as early as next week in a three-week trial that is expected to feature a number of high-profile witnesses. Those witnesses, the AP notes, could include James Murdoch of the News Corp empire and Oracle co-founder Larry Ellison.
How did we get here?
This week’s lawsuit traces its origins to a 2018 class-action lawsuit filed by Tesla investors who claimed they lost money and were misled by the CEO’s “Secured Funding” statements, tweets and follow-up statements. Tesla apparently never went private despite repeated assurances from Musk, including this official Tesla blog post. Still, Tesla’s stock prices actually spiked in the days immediately following Musk’s claim, but then fell back down after it became clear that the estimated $72 billion buyout was simply bogus. The burned investors claim in their lawsuit that Musk should be held responsible for their lost funds.
Musk has already paid fines to the Securities and Exchange Commission to settle a separate lawsuit related to the tweets accusing him of making “false and misleading statements” in addition to refusing to comply with regulatory requirements. As part of that settlement, Musk and Tesla agreed to pay separate fines of $20 million. Adding insult to injury, Musk also agreed to step down as Tesla’s chairman for at least three years. In its press release following the settlement, the SEC said Musk’s funding claims “lack an adequate basis in fact.” Musk, for his part, claims he entered the settlement under economic duress and claims he actually somehow believed he had secured financing from Saudi Arabia’s public investment fund.
What may have worried Musk more than the fines or slaps were the additional requirements for Musk to seek prior approval for certain tweets. The mandate requires Musk to direct tweets from Tesla lawyers whenever his remarks may include information about the company’s financials, production or sales numbers, forecasts or non-public regulatory or legal additions. Those requirements infuriated Musk so much that his lawyers filed an appeal with the 2nd U.S. Circuit Court of Appeals last year asking that the provision, which they called a “government-imposed gag,” be thrown out entirely.
Musk is starting the Tesla process in perhaps one of the most difficult periods in recent memory. Despite years of rapid growth, Tesla has had to contend with increasing EV competition from both rival startups and legacy automakers. Investor doubts about Tesla’s continued dominance have led it to its worst stock performance so far in 2022. Those declines, the Associated Press notes, have reportedly resulted in roughly $700 billion in shareholder wealth. Repeated missteps and controversial policies at newly acquired Twitter, meanwhile, have further eroded Tesla investors’ confidence in the CEO.
Musk didn’t show much confidence before the trial. Just this month, Musk’s lawyers tried to challenge the billionaire’s past reputation, combined with the fallout from recent mass layoffs at Twitter, which left a San Francisco-based jury unfairly biased against him. As a result, Musk wanted the trial moved to Texas, where fewer jurors would likely find it off-putting. Federal Judge Chen dismissed Musk’s lawsuit last week, saying he was confident they could find an impartial jury. Austin reportedly, he added, simply had no material connection to the trial at hand.
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