SAN FRANCISCO (CN) — A surprisingly staid Elon Musk took the witness stand Friday in the Tesla securities trial after what must have been a frustrating morning for his defense team as they cross-examined the plaintiffs’ star expert witness, attorney and Harvard professor Guhan Subramanian.
In all, three witnesses sat took the stand throughout the day, including small-time New Jersey investor Timothy Fries who had lost $5,000 with his investments in the electric car company.
Musk faces trial in the lawsuit filed by Tesla shareholders who say they were misled by an Aug. 7, 2018, tweet in which he said he secured financing for a Tesla buyout. That buyout never came to fruition, however, and stockholders cried foul.
“Am considering taking Tesla private at $420. Funding secured,” the South African-born multibillionaire tweeted at the time. Tesla stock jumped in value and then sank when it when it became clear nothing of the sort was going to happen. The tweet also cost Musk $40 million when the U.S. Securities and Exchange Commission fined him following an investigation.
The morning began with the testimony of Guhan, the Joseph Flom Professor of Law and Business at Harvard Law School and the Douglas Weaver Professor of Business Law at Harvard Business School. An expert in mergers, acquisitions and management buyouts, the 52-year-old proved an almost immovable force in the witness stand. He curtailed numerous efforts by defense attorney William Price to trip him up on his studies of previous MBOs, notably those of apparel design and distribution company Perry Ellis, and former computer giant Dell.
Criticizing Musk’s ability to post statements as loaded as the “funding secured” tweet, Guhan called it “egregious corporate governance” because it took six days for any further substantive information to be disclosed by either Tesla or Musk about what would be a transformative move.
Numerous times Price attempted to draw connections between the way the Perry Ellis and Dell deals were conducted and the Tesla situation, but Guhan had none of it. Both those examples, about which Guhan has written extensively, were far smaller and conducted far more traditionally than what Musk had proposed, the Harvard professor insisted.
In the case of Tesla, he said, the time from initial contact with the shareholders to board contact was two days, as opposed to 60 days in the case of Dell. Making a unilateral announcement like the one of Aug. 7, particularly on social media, was highly unusual, Guhan said.
“That’s never been done before, certainly never by Twitter," he testified.
Musk’s use of social media in this instance led to disclosures that were haphazard, incomplete and confusing, Guhan said. Beyond “funding secured,” no details were provided about the source or the amount of financing to take Tesla private.
Clearly flustered at times, Price asked Guhan, “Are you suggesting that he really didn’t intend to take Tesla private?”
Guhan replied: “I think your question is whether I knew what was in Musk’s head but, no, I don’t."
At times during Guhan’s testimony, the questioning over his statements in studies of the Perry Ellis and Dell deals sounded almost as if Price had hoped to retry those particular cases, which drew multiple warnings from U.S. District Judge Edward Chen about conducting “a trial within a trial.”
Following Guhan’s testimony and a 20-minute break, it was announced that Musk would be entering the courtroom next, a statement which immediately drew all heads to the double doors leading into the room. After a seemingly long pause, Musk – dressed in a charcoal gray suit and a black mask — strode through the gallery and made his way to the witness stand.
Plaintiffs’ attorney Nicholas Porritt led the first and only round of questioning of the Tesla CEO for the day. Guhan’s testimony had taken up much of the day and there was only about 30 minutes left before the court would adjourn for the weekend.
On the stand, Musk — particularly in light of his enormous media presence — seemed almost subdued. Much of Porritt’s questioning revolved around Musk’s use of Twitter. Was Musk aware, for example, that the SEC regards information published on social media by a company the same way it sees information published in reports?
“You understand that you are obligated to report accurately in a tweet as you are in an SEC filing?” Porritt asked.
“Everyone on Twitter understands that,” Musk replied but added the character limits cannot be ignored. Twitter limits tweets to 280 characters, a policy which began in 2017.
Porritt wondered, too, whether there had been any review of Musk’s tweets before they went public.
“I mean, I read my tweets. Yes,” Musk replied.
Porritt asked about requests by various Tesla stockholders over the years for Musk to stop tweeting, and the issues stemming from being a publicly traded company. Musk relayed his deepest feelings about short sellers, those investors who profit when a company’s stocks lose value or even when a company tanks.
Musk called them “a bunch of sharks on Wall Street [who] wanted Tesla to die, very badly.”
Musk’s half-hour on the stand ended quickly when Chen adjourned for the day. Musk is expected to return to the stand Monday morning.
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