Tesla CEO Elon Musk Faces Trial in Shareholder Case Over Tweets in 2018

Elon Musk on a smartphone placed on printed Twitter logos in an illustration on April 28, 2022. Dado Ruvic/Reuters

A trial is set to start over a class-action lawsuit regarding whether Tesla CEO Elon Musk knowingly misled investors by claiming that funding was “secured” to take the company private in 2018.

After closing the deal to purchase Twitter in October 2022, the Tesla CEO now has to face his earlier statements on the same social media platform more than four years ago.

Jury selection began in January for the case brought by Tesla shareholders, who are seeking billions of dollars in damages in losses after Musk wrote a tweet on Aug. 7, 2018, about a proposal that never materialized.

Meanwhile, the electric vehicle company’s share price has fallen 64 percent over the past year, as demand for its cars has slowed.

Plaintiffs Seek Billions in Damages From Tesla and Its CEO

The lawsuit, which will take place at federal court in San Francisco, was filed by multiple shareholders who bought or sold Tesla stock in the days following Musk’s tweets four years ago.

“Am considering taking Tesla private at $420. Funding secured,” Musk wrote in the tweet.

He then added, “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote,” causing the electric car maker’s stock price to whipsaw.

Tesla’s shares quickly soared by 11 percent on Aug. 7, 2018, before plunging 10 days later on Aug. 17 after The New York Times reported that funding for the privatization bid was “far from secure” and had fallen through.

The plaintiffs filed their lawsuit shortly after, claiming that they lost billions in Tesla shares in reaction to Musk’s erratic tweets.

The investors have yet to specify how much they seek in damages, but they are expected to demand full compensation for the billions lost.

Meanwhile, the Securities and Exchange Commission (SEC) forced Musk and Tesla to each pay out $20 million via a settlement over the tweets.

Musk also was forced to step down as Tesla’s chairman in a deal with the federal regulator, but allow him to remain as chief executive.

In the meantime, Musk is trying to terminate parts of the agreement he reached with the SEC through an appeal to the Second Circuit U.S. Court of Appeals.

Musk argued that provisions of the settlement inhibited his ability to make public statements about certain Tesla matters and intruded on his First Amendment rights, The New York Times reported.

Musk Claims That His Tweets Were Referring to a Deal With the Saudis

The defendants, including seven current and former Tesla directors, in addition to the billionaire CEO, have denied any wrongdoing.

Musk argued that his tweets were in fact based upon conversations he had with backers from Saudi Arabia’s Public Investment Fund. He claimed that he was only describing what he considered a “handshake” agreement to pull his electric car company off the public markets.

“Going back almost two years, the Saudi Arabian sovereign wealth fund has approached me multiple times about taking Tesla private,” Musk stated in a blog post on Aug. 13, 2018.

“Obviously, the Saudi sovereign fund has more than enough capital needed to execute on such a transaction,” he added.

The Tesla CEO said that he had met Yasir Al-Rumayyan, the managing director of Saudi Arabia’s sovereign wealth fund, on multiple occasions, according to a court filing.

The filing described how Al-Rumayyan encouraged Musk to take Tesla private, offering up to $60 billion in backing.

Musk said that he would seek to introduce new evidence and testimony in court that backs him up and has released a series of tweets in his court filings between himself and the Saudi as proof.

Tesla CEO’s Attorneys Say Bay Area Jury Pool Is Biased Against Him

Musk’s attorneys have argued that the industrialist is viewed too negatively by more than 80 percent of prospective jurors in San Francisco.

They filed a plea to move the upcoming trial out of the state to the Western District of Texas, which includes Austin, where Tesla moved its headquarters in 2021.

The legal team claimed in a filing (pdf) on Jan. 6 that undue negative media attention in the Bay Area in the wake of the mass layoffs at Twitter may bias the jury. “Prejudice can be presumed in this case,” wrote Musk’s attorneys.

“Over the past several months, the potential jury pool in the Northern District has been ‘exposed to excessive and adverse pretrial publicity’ concerning Mr. Musk,” which could potentially deprive him of an impartial jury and his constitutional right to a fair trial,” the attorneys claim.

Two or three of the potential jurors in the selection pool have already admitted that they knew someone at Twitter, the Associated Press reported. 

Judge Refuses Musk’s Request, Comparing His Actions to Disgraced Theranos CEO

U.S. District Court Judge Edward Chen, who is presiding over the trial, denied Tesla’s bid last week to move the proceedings and ruled that accusations of jury bias were unfounded.

Potential jurors were asked before the selection about their personal opinions of Musk and whether they owned a Tesla vehicle, authorities told Reuters.

Chen said that he would assemble an unbiased jury similar to the criminal trial of Elizabeth Holmes, the disgraced former CEO of Theranos, Bloomberg reported.

The judge has already ruled that Musk’s Twitter statements were false and reckless, but said that a jury would decide whether his words mattered to investors and if he willingly attempted to mislead them.

However, Chen has given Musk some room to clear his name by forcing the plaintiffs to prove that their stock losses were tied to certain statements made by the Tesla CEO, which were found by the court to be false.

Also, if the jury finds that other statements Musk made were true and that they led to movements in Tesla’s stock, he may still prevail in the case.

The defendants, in the meantime, have said that they could solidly prove that Musk had good reason to believe that funding for the privatization deal was not secure.

Musk May Be Taking the Stand in His Civil Trial

Once a jury of nine people is finally selected, opening arguments will begin in what is expected to be a three-week trial, Reuters reported.

Musk may be forced to take the stand, according to court documents, along with Oracle Corp. co-founder Larry Ellison and James Murdoch, son of Fox Corp. chairman Rupert Murdoch.

If Musk loses his argument, the jury will have to decide whether to award damages and for which amount.

Many of Tesla’s current stockholders have been concerned that Musk has been devoting less time to his company since his Twitter purchase, as competition from other auto rivals has begun to intensify lately, reported CBS News.

Tesla lost 65 percent in stock value over the past year, wiping out more than $700 billion in shareholders’ assets, far exceeding the $14 billion swings that occurred during the 10-day period covered in the lawsuit.

Reuters and the Associated Press contributed to this report.