Filings for the August 2018 class-action lawsuit on behalf of investors who owned Tesla stock are being filed at a federal courthouse in San Francisco on Friday. (Jeff Chiu, Associated Press)
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SAN FRANCISCO — Elon Musk took the witness stand Friday to defend a 2018 tweet that claimed he was lining up financing to take Tesla private in a deal that never came close to happening.
The tweet resulted in a $40 million settlement with securities regulators. It also sparked a class-action lawsuit alleging he defrauded investors, spending nearly half an hour in court Friday testifying under oath in front of a nine-person jury and a full media room and other spectators.
The trial was then adjourned over the weekend and Musk was told to return on Monday to answer more questions.
In his first appearance on the stand, Musk defended his prolific tweeting as “the most democratic way” to spread information, even as he acknowledged that the limitations of Twitter’s 280-character limit could make it difficult to make things as clear as possible.
“I think you might be absolutely right (on Twitter),” Musk said on the stand. “But can you be thorough? Of course not.”
Musk’s latest headache stems from his peculiar brevity on Twitter, which he ran after completing his $44 billion acquisition in October.
The trial hinges on whether a pair of tweets sent by Musk on Aug. 7, 2018, harmed Tesla shareholders during a 10-day period in which Musk admitted the proposed buyout would not happen.
In the first of these two 2018 tweets, Musk “finance provided” what would be a $72 billion buyout of Tesla at a time when the electric car maker is still struggling with production issues and is far below its current value. Musk followed up a few hours later another tweet suggested that a deal was inevitable.
After it became clear that there was no money to take Tesla private, Musk resigned as Tesla’s chairman while remaining CEO as part of a settlement with the Securities and Exchange Commission without admitting any wrongdoing.
The impulsive billionaire appeared in court wearing a dark suit and tie on the third day of his civil trial in San Francisco. His lawyer failed in his attempt to move to Texas, where Tesla is currently headquartered. Twitter had tainted the jury.
The jury, which convened earlier this week, focused on Musk as he answered questions from Nicholas Porritt, a lawyer representing Tesla shareholders. At one point, Musk asked Porritt if he would speak closer to the microphone so he could hear him better. At other times, Musk craned his neck as he looked around the courtroom.
Musk, 51, said he “cares a lot” about investors and is also tough on short sellers who make investments that reward them when the company’s stock price falls. He calls short selling an “evil” practice that should be banned, and smears those who profit from it as “a bunch of sharks.”
When shown communications from Tesla investors prior to his 2018 acquisition tweet urging him to tone down or stop his Twitter habit altogether, Musk said he doesn’t remember all the interactions from years ago, especially since he received the “Niagara Falls” email.
Before Musk took the stand, U.S. District Judge Edward Chen said jurors could consider the two tweets false and have the right to decide whether Musk intentionally misled investors and whether his statements caused them harm.
Musk has previously claimed he entered into the SEC agreement under pressure and said he believed he had secured financial support for the Tesla acquisition during meetings with representatives of Saudi Arabia’s Public Investment Fund.
A corporate takeover expert hired by shareholder lawyers to study developments surrounding Musk’s proposal to take Tesla private spent the better part of three hours on the stand Friday, deriding the plan as an ill-conceived concept.
“This proposal was extremely outlandish,” said Guhan Subramanian, a professor of business and law at Harvard University for more than 20 years. “It was incoherent. It was an illusion.”
In lengthy cross-examination that delayed Musk’s appearance, Tesla’s board attorney tried to derail Subramanya’s testimony by pointing out that he had relied on the help of graduate students to review some of the material related to the August 2018 tweets. Attorney William Price also noted that Subramanya was paid $1,900 an hour to compile his case report.
His lawsuit over his Tesla tweets comes as Musk has kept his focus on Twitter while serving as the automaker’s CEO and also deeply involved in SpaceX, the rocket ship company he founded.
Musk’s leadership of Twitter — where he has fractured staff and alienated users and advertisers — has proven unpopular with Tesla’s current shareholders, who are worried that he is spending less time running the automaker as competition heats up. Those concerns led to a 65% drop in Tesla’s stock last year, wiping out more than $700 billion in shareholder wealth — far more than the $14 billion that occurred between the company’s highs and lows between Aug. 7 and 17. , 2018, the period covered by the class action.
Tesla’s shares have since split in half, bringing the $420 purchase price outlined in his 2018 tweet to $28 on an adjusted basis. Shares of the company were trading around $133.42 on Friday, down from the company’s November 2021 split-adjusted peak of $414.50.
After Musk abandoned the idea of buying Tesla, the company overcame production problems, resulting in a rapid increase in car sales that sent its stock soaring, making history as the world’s richest man until Musk bought Twitter. After the stock market’s reaction to his work with Twitter, Musk fell from the top spot on the wealth list.
Asked Friday about Tesla’s challenges in 2018, he recalled the many nights the automaker spent sleeping at its California factory trying to keep the company afloat.
“In those 2017, 2018, the high level of pain to make Tesla successful was unbearable,” he said.