Jury Rules for Elon Musk and Tesla in Investor Lawsuit Over Tweets
A jury decided Friday that Elon Musk was not liable for losses suffered by investors after he posted messages on Twitter saying he had secured the funding to take Tesla private in 2018.
Investors had sued Mr. Musk, Tesla and the company’s board, arguing that his statements about his embryonic plan to take the electric car company private had devastating financial consequences for them. But in a federal civil trial in San Francisco over the last three weeks, lawyers for Tesla and Mr. Musk, the automaker’s chief executive, have argued that he was such a successful businessman that he could have easily obtained financing to take Tesla private.
Two posts on Twitter by Mr. Musk were at the heart of the case. On Aug. 7, 2018, he wrote on Twitter: “Am considering taking Tesla private at $420. Funding secured.” He then wrote: “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.” Tesla’s share price jumped after those posts and then tumbled after the proposal fell apart in less than three weeks.
The federal judge in the case, Edward M. Chen, had already ruled that “funding secured” and Mr. Musk’s second statement were untrue, and that Mr. Musk was reckless when posting them.
The jurors — seven men and two women — deliberated for about an hour, finding that Mr. Musk’s statements did not cause the investors’ losses. The verdict allows Mr. Musk to claim vindication for a dark period in his professional life, when Tesla was struggling to increase production of its most affordable car, the Model 3.
“I thought he was crazy to try his chances at trial, given the stakes involved,” said Adam C. Pritchard, a law professor at the University of Michigan, noting the judge’s pretrial rulings. “You’re fighting with one hand behind your back in that situation — and yet he won.”
If he had lost, Mr. Musk and Tesla might have had to pay billions of dollars in damages to investors who said they had lost money when the company’s stock surged after his statements on Twitter and then tumbled after his plan fizzled.
“Thank goodness, the wisdom of the people has prevailed!” Mr. Musk posted on Twitter, referring to the verdict, adding that he was “deeply appreciative” of the decision.
A lawyer for the plaintiffs, Nicholas Porritt, said in an email, “We are disappointed with the verdict and considering next steps.”
After the verdict was read, three jurors answered questions from lawyers for the plaintiffs. One male juror said their arguments were difficult to follow and sometimes seemed disorganized.
“There was nothing there to give me an ‘aha’ moment,” he said, later adding, “Elon Musk is a guy who could sneeze and the stock market could react.”
Throughout the trial, the investors’ lawyers had argued that Mr. Musk knew Tesla was nowhere near going private because no individuals and investment funds had committed specific amounts of money to the deal. There was also neither a definitive structure for a private Tesla nor a clear path to regulatory approval for the plan, the lawyers said.
“This case is about whether rules that apply to everybody else should apply to Elon Musk,” Mr. Porritt said during closing arguments. He added that the stock market “only works because there are rules that keep people honest, so people can trust information in the market.”
The legal team for Mr. Musk and Tesla had argued that the company’s share price may have moved because Mr. Musk said he was considering taking Tesla private, a statement that they say was true. They have also argued that funding was actually plentiful but that Mr. Musk didn’t have exact numbers because he didn’t know how many shareholders would want to continue owning shares in Tesla once it was no longer on the stock exchange.
“Funding was not an issue,” said Alex Spiro, a lawyer for Mr. Musk and Tesla. He added, referring to Mr. Musk, that the deal had collapsed because “his motive was to do right for the shareholders.”
A year after Mr. Musk floated the idea of taking Tesla private, the company’s stock price began climbing as it put its production problems behind it and was for a time one of the best-performing stocks among large companies. Its share price tumbled 65 percent last year as competition in the market for electric cars intensified and Tesla slashed car prices. But the share price has jumped around 50 percent this year.
The case concluded less than four months after Mr. Musk acquired Twitter, whose headquarters are a half-mile from the federal court in San Francisco.
In 2018, Mr. Musk and Tesla settled a separate lawsuit with the Securities and Exchange Commission about his plan to take Tesla private. They paid $40 million in fines to the S.E.C., and Mr. Musk agreed to resign as Tesla’s chairman and to allow a lawyer to review some statements about Tesla before Mr. Musk posted them on social media. Mr. Musk is currently trying to terminate parts of that agreement in the U.S. Court of Appeals for the Second Circuit.
Mr. Pritchard, the law professor, said he did not believe that Mr. Musk’s victory would lead other chief executives to make impromptu statements that could move stock prices. “Most C.E.O.s will do what their general counsels tell them to do in situations like this,” he said.
Legal experts said most executives and companies would have settled the investor lawsuit. But Mr. Musk has often been willing to fight lawsuits in court. In 2019, a federal jury in Los Angeles decided that he had not defamed a British cave diver by calling him a “pedo guy” on Twitter. The two men were engaged in an acrimonious dispute about the rescue of children trapped in a cave in Thailand a year earlier.
A Delaware judge is expected to rule soon on a lawsuit brought by a Tesla shareholder who is arguing that the company’s board did not act independently of Mr. Musk when devising a lucrative compensation package for him in 2018. The shareholder has asked the court to void the pay deal, which gave Mr. Musk the right to acquire nearly $50 billion of Tesla stock.
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