Opening arguments kicked off Wednesday in a trial that is pitting Tesla against shareholders accusing the company of misleading them over a tweet by Elon Musk stating funding had been "secured" to take the electric car company private.
A lawyer for Tesla investors told a nine-person jury that Musk “lied” when he sent the Aug. 7, 2018 tweet, costing investors money while its share price fluctuated as Wall Street digested the information. Ultimately, the company remained publicly traded.
“Millions of dollars were lost when his lies were exposed,” said attorney Nicholas Porritt, who represents the investors.
A lawyer for Musk argued that the billionaire merely used the “wrong words," and that Musk was “serious” about taking the company private in 2018 with the help of Saudi Arabia's public investment fund, but ultimately encountered shareholder opposition.
Lead shareholder plaintiff Glen Littleton is seeking billions of dollars in damages over the 2018 tweet. Shares of Tesla stock began a steady decline that continued into the following year.
The fallout led to an investigation by federal regulators. Musk and Tesla were separately fined $20 million and Musk was forced to step down as Tesla's chairman. He also agreed to a requirement to have lawyers review his statements about Tesla before publishing them on social media.
Last May, Judge Edward Chen, who is overseeing the trial, granted Littleton and the other plaintiffs summary judgment that Musk's remarks 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 share price, and any damages.
“Everything is lined up for a plaintiffs’ win here,” Minor Myers, who teaches corporate law at the University of Connecticut, told Reuters, adding the ruling in May means the shareholders are “starting with runners on base."
The case is unusual because most class-action securities lawsuits are either dismissed or settled out of court. Hundreds of U.S. securities class actions have been filed every year since the current laws governing the cases went into effect in 1996, but only 15 resulted in trial verdicts, according to data from law firm Wolf Popper LLP cited by Reuters.
If shareholders ultimately prevail and win damages, it will likely be years before they can collect due to the appeals process, experts said.
It is not clear whether Musk himself will testify. Other Tesla-linked individuals, including Larry Ellison, former board member and Oracle Corp. co-founder; and James Murdoch, current board member and son of media mogul Rupert Murdoch, may also testify.