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Elon Musk defends tweets at San Francisco fraud trial

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Alex Spiro, attorney for Elon Musk, center, leaves the courthouse in San Francisco, California, US, on Tuesday, January 17, 2023.

Benjamin Fanjoy | Bloomberg | Getty Images

tesla CEO Elon Musk appeared in federal court in San Francisco on Friday to defend tweets he posted to tens of millions of followers in August 2018.

The tweets said he had “secured funding” to take his electric vehicle company private at $420 a share, and that “investor support” for such a deal was “confirmed”.

Tesla stock trading initially stalled after the tweets, so the stock was highly volatile for weeks. Musk later said he was in talks with Saudi Arabia’s sovereign wealth fund and was sure the funding would come at the proposed price. A deal never materialized.

The SEC charged Musk and Tesla with civil securities fraud following the tweets. Musk and Tesla each paid fines of $20 million to the agency and reached a revised agreement that required Musk to temporarily step down as chairman of Tesla.

His 2018 tweets also triggered a shareholder class action by Tesla investors. They claimed that Musk’s tweets misled them and said that relying on his statements to do business had cost them significant amounts of money.

The shareholder talks in question took place over a 10-day period before Musk appeared to admit that a delisting deal would not happen in 2018.

Musk said under oath on Friday that it is difficult to link Tesla’s stock price to his tweets.

“There were many instances where I thought if I tweeted something, the stock price would go down,” Musk said. “For example, at one point I tweeted that I thought, in my opinion, the stock price was too high… and it went up, which is, you know, counterintuitive.”

A huge increase in trading volume after he tweeted

It is rare for senior executives of publicly traded companies to discuss their share price because any comment can influence price movements.

Daniel Taylor, director of the Wharton Forensics Analytics Lab and professor at the University of Pennsylvania, analyzed all Tesla stock trades that occurred on August 7, 2018, the day Musk tweeted. He calculated the total trading volume every minute from the time the market opened to the time Musk tweets about a buy.

Taylor found that the trading volume for the minute Musk tweeted at 12:48 ET that day was over $350 million, and the trading volume for Tesla stock the next minute was over $250 million. By comparison, the average volume five minutes before Musk tweeted was $32 million per minute. A minute before Musk tweeted, the trading volume was $24 million.

“It’s generally true that correlation is not causation,” Taylor told CNBC on Friday after Musk’s first day on the witness stand. “However, I am unaware of any alternative explanation for a 10x increase in trading volume in the same minute Elon Musk tweeted.”

Musk also testified about his low opinion of short sellers on Friday.

“I believe short selling should be illegal,” Musk said, referring to short sellers as “bad people on Wall Street” who “steal” from other investors. He said they also plant stories in the media to “make stocks go down” and “will do anything in their power to make a company die”.

Tesla was among the hottest selling stocks in August 2018 when Musk made the Tesla delisting remarks. Tesla’s stock price rose about 10% during that day’s trading. Short sellers face huge losses when a particular company’s stock rises.

Some of the plaintiffs in the ongoing trial claim that Musk’s “secured funding” tweets were intended to push Tesla’s stock price higher, creating a so-called “short squeeze”.

Musk’s testimony is not yet complete and the court plans to hear him again on Monday.

TO WATCH: Musk testifies about tweets

Tesla CEO Elon Musk Will Testify About 2018 'Secured Funding' Tweets