SAN FRANCISCO (CN) — In a class action claiming Elon Musk misled Tesla investors with fraudulent tweets, a federal judge on Thursday appeared highly skeptical of the company’s argument that the CEO’s social media statements were “entirely truthful.”
Musk tweeted on Aug. 7, 2018, “Am considering taking Tesla private at $420. Funding secured.” In another tweet that same day, he stated “Investor support confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.”
In nine consolidated lawsuits, lead plaintiff Glen Littleton and other investors claim they lost millions of dollars after the New York Times reported that Musk did not obtain funding commitments from the Saudi Arabia Public Investment Fund as he claimed in a follow-up Tesla blog post on Aug. 13, 2018.
The company’s share price dropped 9% on Aug. 17, 2018, erasing more than $5 billion in market value, according to the investors’ consolidated class action complaint.
After abandoning the privatization plan, Musk and Tesla were hit with a lawsuit by the Securities and Exchange Commission. The CEO and his company agreed to pay $20 million each to the SEC in a September 2018 settlement. The deal also required Musk to step down as board chairman for three years and to stop tweeting about Tesla business without preapproval from a company lawyer.
In January, investors in the consolidated lawsuit filed a motion for partial summary judgment asking U.S. District Judge Edward Chen to rule that Musk’s tweets violated federal securities law and that investors are entitled to recover damages.
During a virtual hearing Thursday, Chen asked Tesla’s attorney to explain how Musk’s “funding secured” statement could be read by investors to mean the transaction was incomplete and far from final.
“Funding had not been secured,” Chen said.
Tesla attorney Alex Spiro of Quinn Emmanuel said the whole tweet must be read in context, starting with Musk’s first words: “Am considering taking the company private.”
“That statement is demonstrably true,” Spiro said, adding that Musk’s “funding secured” statement was simply meant to convey that funding would not be a problem.
Spiro cited testimony by one witness of a “handshake deal” that occurred at a July 2018 meeting between Musk and the head of Saudi Arabia’s Public Investment Fund.
When asked if the $420 per share figure was discussed at that meeting, Spiro acknowledged it was not, but he said ample evidence exists showing that Musk considered taking the company private at that price.
“But it takes two to tango,” Chen replied. “If you don’t even have an understanding of the price … how can it be a deal, even if it’s just a handshake deal?”
Spiro argued that a jury, not a judge, should decide if the tweet was false because the statement's meaning is a factual dispute, which is not yet ripe for a legal conclusion. A reasonable jury could conclude that Musk meant “funding was not an issue” when he tweeted “funding secured," Spiro said.




