Before Elon Musk bought Twitter and ran it off a cliff, he used the social media platform to post an incredibly ill-considered tweet that ended up costing him millions of dollars and a coveted job title. Today, a trial in San Francisco related to that tweet is getting underway — the outcome of which could cost Musk money and status, depending on how it turns out.
Of course, I’m referring to his infamous “funding secured” tweet in which he said he was considering taking Tesla private at $420 a share.
It was later revealed that Musk had not actually secured the funding. After an investigation, the SEC fined him $40 million, and Musk was forced to step down as chair of Tesla’s board. Amazingly, the tweet continues to haunt him to this day: jury selection stemming from a class action lawsuit brought by several Tesla investors starts today.
But 2018 was a long time ago, and it can be difficult to keep track of all of Musk’s legal liabilities. (Case in point: he is currently waiting on the verdict in a separate trial over his $56 billion pay package from Tesla. He has also been sued by a bunch of former Twitter employees for their mass firing.)
So, let’s go back in time to the late 2010s and retrace our steps.
On August 7th, 2018, at 12:48PM ET, Musk tweeted, “Am considering taking Tesla private at $420. Funding secured.” As with all things Musk, it was difficult to discern his real intentions from his juvenile humor. But it turned out that the tweet was more than just a weed joke; he was seriously considering taking private his electric car company, which had been publicly traded since 2010.
How seriously he was considering it, though, was up for debate. He apparently had some cursory conversations with Saudi Arabia’s sovereign wealth fund about funding the deal. But in the days following the tweet, the Saudis lost interest, leading Musk to accuse the governor of the kingdom’s Public Investment Fund (PIF) of throwing him “under the bus.”
The SEC immediately launched an investigation, eventually concluding that, while he had held a few meetings with Saudi Arabia’s sovereign wealth fund, Musk “had never discussed a going-private transaction at $420 per share with any potential funding source, had done nothing to investigate whether it would be possible for all current investors to remain with Tesla as a private company via a ‘special purpose fund,’ and had not confirmed support of Tesla’s investors for a potential going-private transaction.”
But in subsequent court filings, Musk continued to argue that funding was secured and there was investor support. He said that he felt pressure to settle the issue with the SEC or risk Tesla’s financial security.
The trial stems from a class action lawsuit brought by Tesla investors who owned stock over a 10-day period (August 7th–17th) in which Musk sent his tweet. And Musk is already starting from a pretty weak position.
Last April, District Court Judge Edward Chen ruled that Musk’s tweets were “false and misleading” and that Musk “recklessly made the statements with knowledge as to their falsity.”
Unsurprisingly, this has the plaintiffs feeling pretty good about their case. The shareholders have not specified the damages but said Musk’s tweets cost investors “billions.” Eduard Korsinsky, an attorney who represents the Tesla investors, told Reuters that the case was “exceptionally strong.” And another law professor unconnected to the case said that plaintiffs were starting with “runners on base.”
Since the judge has already determined that Musk’s tweets were false, the jury will only decide whether the statements impacted Tesla’s share prices, if Musk acted knowingly, and the amount of any damages.
The tweet certainly had an effect on Tesla’s share price — the price swung about $14 billion over the 10-day period — and the plaintiff’s lawyers are expected to make this a central part of their argument to the jury.
Musk’s lawyers are expected to make the same argument they did against the SEC: that the billionaire had good reason to believe the funding was secured based on his conversations with the Saudis.
According to court filings, Musk met Yasir Al-Rumayyan, the managing director of Saudi Arabia’s sovereign wealth fund, on multiple occasions, and Al-Rumayyan urged Musk to take Tesla private and offered up to $60 billion in backing.
But according to text messages that were made public as part of this lawsuit, Al-Rumayyan appeared to get cold feet, triggering Musk’s anger. The billionaire CEO was incensed by news stories that claimed that PIF had “shown no interest” in helping take Tesla private, claiming that Saudi officials had told him otherwise. The news stories were “false” and “outrageous,” Musk raged.
“This is an extremely weak statement and does not reflect the conversation we had at Tesla,” Musk said in one of the messages, linking to a Bloomberg story. “You said you were definitely interested in taking Tesla private and had wanted to do so since 2016. You also made it clear that you were the decision-maker, moreover backed strongly by the Crown Prince, who regards this as strategically important at a national level.”
He added, “I’m sorry, but we cannot work together.”
“It’s up to you Elon,” Al-Rumayyan replied.
“You are throwing me under the bus,” Musk said.
“It takes two to tango,” Al-Rumayyan said, adding that PIF has yet to receive financial information from Musk’s team regarding the plan to take Tesla private. The PIF governor said the fund would not be able to move forward in its talks with Tesla without “sufficient information.”
Musk argued that because of all the negative press he’s been getting from his $44 billion acquisition of Twitter, he wouldn’t get a fair trial in San Francisco. He asked the judge to relocate the trial to West Texas due to the “local negativity” in the Bay Area.
You could see that in the questionnaire filled out by potential jurors in the trial, in which one woman described him as “the next Trump” and a “delusional narcissist,” according to Bloomberg. Another said that Musk was “not likeable.” And one man noted that Musk’s cars were “beautiful,” even though the man himself was “an idiot.”
Alex Spiro, a lawyer for Musk, argued that amid all the media controversy around Musk, “we don’t think we can get a fair trial in this district, period, full stop.”
“The media reports are character assassinations,” Spiro added. The “flavor and tenor” of the “character reporting” is about a “human being who is making firing decisions” at Twitter. He said “it doesn’t dissipate through evidence” presented at trial.
But Judge Chen didn’t buy this argument, expressing confidence that an impartial jury could be chosen to oversee Musk’s trial. Chen also noted that Musk still has “a lot of fans” in the Bay Area, according to Bloomberg. Chen also dismissed the idea of moving the trial to Texas, noting that it has no connection to the state as it was filed while Tesla was still headquartered in California.
Musk, for one. Also Oracle co-founder Larry Ellison and James Murdoch, former News Corp executive and current Tesla board member.
Taking the stand is not a rare move by Musk; he took the stand recently in a trial over his Tesla compensation package in which he spoke openly about not wanting to be CEO of any company and musing about the provenance of his various titles. (No, he was not drunk when he came up with the title “Technoking” at Tesla.)
He also beat a libel case over claims he defamed a cave diver as a “pedo guy.” And he won a bench trial in Delaware’s Court of Chancery over claims by Tesla shareholders that he coerced the company’s board into acquiring SolarCity, a solar panel maker owned by his cousin.
But it’s still a risky move. Most CEOs avoid testifying under oath, but Musk isn’t most CEOs. The trial is expected to last three weeks, but the parties could settle at any time, even during the middle of the proceedings. Reuters notes that the vast majority of securities fraud trials end in settlements.
But if it goes to a verdict and shareholders win, it may be years before they collect any damages. And by then, who knows where Musk will be. Mars perhaps.