Musk, the CEO of Tesla and Twitter, was called to testify on the third day of a three-week trial in which shareholders claim they suffered billions worth of economic damage and large losses from a false claim that he had financing to take Tesla off the public markets.
Judge Edward M. Chen has already ruled that claim false. But the case hinges on the extent to which the allegations were material to subsequent market movements, and how much investors relied on Musk’s tweets to make trades that lost them money. If the jury finds Musk or Tesla liable – or both – jurors must decide on the defendants’ responsibility for the losses. Several current and former board members of Tesla are also named in the lawsuit.
Musk tweeted on August 7, 2018: “I’m considering taking Tesla private for $420. Funding secured.” He followed that with a subsequent tweet, also referenced in court documents, reading “Investor support confirmed. The only reason this is not certain is that it is subject to a shareholder vote.”
In the days that followed, Musk’s demands fell apart. On August 13, 2018, Musk revealed that he had been in communication with the Saudi Arabian sovereign wealth fund about the possibility of taking the company private at a price that would value the company at more than $70 billion. But the post was far from definitive.
Tesla published a blog post from Musk on August 24, 2018, in which he said he intended to keep Tesla public. “That said, my belief that there is more than enough funding to take Tesla private was reinforced during this process,” it said.
The Securities and Exchange Commission sued Musk that September for allegedly lying to investors over the claim. Musk and Tesla settled, eventually paying $20 million in fines each, and Musk agreed to step aside as chairman of Tesla.
Musk has had repeated court appearances in recent years regarding his management of Tesla, including in a lawsuit related to his compensation, as well as in a case related to the acquisition of solar energy company SolarCity.
On Wednesday, plaintiff and class representative Glen Littleton testified that he saw “Funding secured” as the key claim in Musk’s statements, and additional context underlying it. Littleton has said he lost more than $3.5 million as a result of the case.
But the class represents shareholders across the spectrum, including long and short sellers, and large and small investors.
Another witness, Timothy Fries, explained Friday that the “Funding secured” tweet cost him $5,000.
“I felt like I lost money because of a misrepresentation,” he said from the stand. “I hope to get my money back, my losses back. … I wasn’t ready to buy stock until I saw the tweet.”