The opening arguments began Wednesday in a lawsuit in which Tesla is facing shareholders who accuse the company of misleading them over a tweet from Elon Musk that said funding was “secured” to make the electric-car company private .
An attorney for Tesla investors told a panel of nine that Musk “lied” when he sent the Aug. 7, 2018 tweet, which cost investors money while the stock price fluctuated as Wall Street processed the information. Ultimately, the company remained listed.
“Millions of dollars were lost when his lies were exposed,” said attorney Nicholas Porritt, representing the investors.
A lawyer for Musk argued that the billionaire merely used the “wrong words” and that Musk was “serious” about privatizing the company in 2018 with the help of Saudi Arabia’s public investment fund, but ultimately faced shareholder opposition.
Major shareholder plaintiff Glen Littleton is seeking billions in damages over the 2018 tweet. Tesla stock shares began a steady decline that continued into the following year.
The fallout prompted an investigation by federal authorities. Musk and Tesla were separately fined $20 million and Musk was forced to resign as Tesla’s chairman. He also agreed to a requirement to have his statements about Tesla reviewed by lawyers before they are posted on social media.
Elon Musk arrives at the Met Gala in New York on May 2nd. Angela Weiss/AFP via Getty Images file
Last May, Judge Edward Chen, who is overseeing the trial, awarded Littleton and the other plaintiffs summary judgment that Musk’s statements about the Take Private deal were false and reckless. A Northern California jury will now determine whether Musk knowingly made the false statement, how the tweet affected the stock price, and whether damages were awarded.
“Everything is geared towards the plaintiffs winning here,” Minor Myers, who teaches corporate law at the University of Connecticut, told Reuters, adding that May’s ruling means shareholders “start with runners on the grassroots.”
The case is unusual in that most securities class actions are either dismissed or settled out of court. Hundreds of US securities class-action lawsuits have been filed each year since the current laws governing the cases went into effect in 1996, but only 15 have resulted in court rulings, according to data from law firm Wolf Popper LLP cited by Reuters.
If shareholders ultimately prevail and are awarded damages, it will likely be years before they can collect on the appeals process, experts said.
It is unclear whether Musk himself will testify. Other people associated with Tesla, including Larry Ellison, former board member and co-founder of Oracle Corp.; and James Murdoch, current board member and son of media mogul Rupert Murdoch, could also testify.