Elon Musk being sued over his ‘funding secured’ tweet

Washington [US]: Twitter CEO Elon Musk is facing a lawsuit over a four-year-old tweet in which he said Tesla shareholder’s funding was “secured,” reported CNN.

Musk, Tesla and other Tesla directors are facing a shareholder lawsuit over his now-infamous 2018 tweet, in which he said was thinking about taking Tesla private at a price of USD 420 a share. If he had ended the tweet right there, there wouldn’t still be coverage of it, or a lawsuit that seeks unspecified damages.
But he concluded it with two words that have resulted in Musk having to pay millions of dollars in fines and legal fees: “Funding secured.”

It turned out that while Musk had spoken to executives of the Saudi sovereign wealth fund about the money he would need to take Tesla private, the funding was anything but “secured,” reported CNN.

Tesla’s shareholders claim they were defrauded by Musk’s 2018 statement that funding was “secured” to take the electric car maker private.

The lawsuit seeks damages for shareholders who bought or sold Tesla stock in the days after Musk’s tweets on August 7, 2018. The company’s shares shot higher and then fell again after August 17, 2018.

Tesla shares initially climbed 11 per cent on the day of on his original tweet, but they never reached that promised USD 420 level, reaching a high that day of USD 387.46.

And they soon fell well below their pre-tweet price of USD 344, hitting USD 263.24 a month later, as it became clear that the funding was less than secure, prompting the shareholder suit that is just now reaching trial after more than four years, reported CNN.

Musk’s tweet also prompted a civil suit by the Securities and Exchange Commission, the federal agency charged with protecting investors by requiring executives to tell the truth. It initially sought to strip him of his position as Tesla’s CEO.

It eventually reached a settlement with Musk in which he and Tesla each agreed to pay USD 20 million in fines, and Musk gave up his title as chairman of the company but retained the CEO title. It also required that any tweet he sent out with material information about Tesla be reviewed in advance by other company executives.

Musk later said he only agreed to the settlement because continuing to fight would have resulted in banks cutting off the funding that Tesla needed to survive, which was then losing money and facing a cash crunch. In comments at a TED conference last year he compared the negotiations with the SEC as comparable to someone pointing a gun to his child’s head.

But despite his claims to have funding secured, Federal Judge Edward Chen, who is hearing the case that starts Tuesday, said in a ruling last April that “no reasonable jury could find Musk’s tweets on August 7, 2018, accurate or not misleading” and rejected Musk and other defendants’ request to have the case dismissed before trial, reported CNN.

Last week Chen also ruled against a motion by Musk and other defendants to have the case moved to Texas, where Tesla’s headquarters are now based, rather than in San Francisco.

They had argued that media attention about Musk and his purchase of Twitter made it impossible to find an unbiased jury in the San Francisco Bay area, particularly its coverage of his layoffs at Twitter since completing the purchase, and his views on allowing tweets which might have previously been banned for spreading misinformation.

This is only the latest court case involving Musk. He is still awaiting a decision in a bench trial in a separate shareholder case held in Delaware state court challenging the compensation package he received from Tesla that made him the richest person on the planet until the recent decline in the company’s stock price, reported CNN.