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Elon Musk among witnesses expected to be called this week in Tesla tweet trial

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More witnesses, including Tesla (TSLA) CEO Elon Musk, are expected to be called to testify this week at a federal trial in California to settle Tesla shareholders’ claims for billions of dollars in damages against Musk and the board. from the company.

Tesla shareholders on Wednesday launched their case as chief, following opening statements from Musk’s lawyer that presented Musk’s defense of a 2018 tweet saying it had “funding secured” to take the electric vehicle company private.

“These tweets are informal and sporadic thoughts,” Musk’s attorney Alex Spiro told jurors about the private settlement that never materialized. Musk’s choice of words may have been ill-advised, Spiro said, although the tweet reflected a “split-second decision” to benefit – rather than harm – investors.

Aug 7, 2018 Tweet by Elon Musk

Aug 7, 2018 Tweet by Elon Musk

The Tesla shareholder class that filed the lawsuit alleges that Musk’s August 7, 2018 tweet about the funding was false and therefore violated US securities laws. They relied on the veracity of the information, they argue, leading to trading losses over a 10-day period starting on the day of the tweet.

Shareholders say the new information in the tweet sent Tesla’s stock price soaring because the $420-per-share offer Musk tweeted represented a 20% premium over the trading price. The stock dropped below where it was before the tweet. (Since then, Tesla stock has had two stock splits and currently trades around $129 a share.)

According to Spiro, at the time of the tweet, Musk had already held a series of private meetings with executives from the Public Investment Fund of Saudi Arabia. Fund executives, he said, agreed to take Tesla private at $420 a share.

That commitment, Sprio said, prompted Musk on Aug. 2 to email Tesla’s board a private “informal” offer to acquire the company for that price. The offer, he added, positioned Musk as a counterpart to his own directors.

“He was more than just considering” taking Tesla private, Spiro told jurors of Musk’s thought process in crafting the tweet. “He was the bidder.”

Elon Musk attends the opening ceremony of the new Tesla Gigafactory for electric cars in Gruenheide, Germany on March 22, 2022. Patrick Pleul/Pool via REUTERS

Elon Musk attends the opening ceremony of the new Tesla Gigafactory for electric cars in Gruenheide, Germany on March 22, 2022. Patrick Pleul/Pool via REUTERS

However, on Aug. 7, Musk’s accountability to Tesla’s shareholders changed, Spiro said, when a report published in the Financial Times cited an anonymous source who revealed what Musk already knew – that the Kingdom of Saudi Arabia had bought shares on the open market. , making his sovereign wealth fund one of Tesla’s major shareholders.

Knowing he had previously engaged in non-public dealings with the fund and that shareholder information should not be selectively disclosed to shareholders, Musk abruptly tweeted the possibility of going private, Spiro told jurors.

Spiro went on to say that everyone in the room when the Saudi fund committed to taking Tesla private would support the deal, and that the executive in charge of the fund agreed to “do what needed to be done” to privatize the then – EV company struggling.

Spiro drove subsequent tweet from August 7, 2018 from Musk who reaffirmed his “secured funding” post and said only shareholder consent was needed to close the deal, as well as a blog entry the same day that offered additional details about contingencies on Tesla’s website.

Tweet posted on Elon Musk's Twitter account on Aug 7, 2018

Tweet posted on Elon Musk’s Twitter account on Aug 7, 2018

The blog clarified that Tesla had yet to make a final decision on the privatization deal. And Spiro downplayed the word “just” in Musk’s secondary tweet, saying the lack of market response to Tesla’s blog post shows that Musk’s tweets haven’t moved the often volatile stock.

“These tweets … they matter to plaintiffs’ lawyers. They don’t matter to the marketplace,” Spiro said.

The shareholders’ first witness, class representative Glen Littleton, testified on Wednesday after both parties gave opening statements.

Littleton testified that he liquidated his puts and calls on Tesla as soon as he learned of Musk’s initial tweet.

When he saw the words “secured funding,” he said, he started to dump his positions because he was out of cash at the $420 IPO price declared by Musk. Both sets of options, Littleton said, would quickly drop to $0 should the deal go through.

In a separate case filed by the US Securities and Exchange Commission in response to the funding tweet, Musk and Tesla settled the matter, each paying a $20 million fine. Musk also agreed in the deal to step down as Tesla chairman and have Tesla’s general counsel review potentially “material” tweets before they are published. Musk is currently trying to dissolve that part of the deal.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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