Elon Musk was found not liable in a securities fraud class action lawsuit centered on the Tesla CEO’s now infamous “funding secured” tweet.
After less than 90 minutes of deliberation, a jury announced its verdict in the trial that began three weeks ago in San Francisco. The outcome of the trial sent Tesla shares about 1.5% in after-hours trading to $189.98.
Musk tweeted Friday following the verdict of the jury: “Thank God the wisdom of the people has prevailed! I deeply appreciate the unanimous finding of innocence by the jury in the Tesla 420 private case.”
The central question in the lawsuit was whether Musk was liable for shareholder losses after he posted several messages on Twitter in August 2018 that he had obtained funding to take Tesla private. Musk initially tweeted “I am considering taking Tesla private for $420. Financing assured.” Just a few more tweet soon followed: “Investor support has been confirmed. The only reason this isn’t certain is that it depends on a shareholder vote” and then another stating that he doesn’t have a controlling vote right now and “wouldn’t expect a shareholder to have one if we went to the go stock market.”
Plaintiffs’ attorneys representing investors argued that these shareholders were financially disadvantaged as a result. Musk, Tesla and his board faced billions of dollars in damages.
The process was not to determine whether those tweets were true. That question was already answered. Edward M. Chen, the federal judge overseeing the case, ruled that the tweets were untrue and that Musk was reckless in posting them.
The three-week trial was largely a tug of war over language and intent.
Attorney Nicholas Porritt, who made closing arguments for the plaintiffs, argued that when Musk posted the tweets, the company was far from reaching a deal to go private, citing emails and text messages to prove there was there was no agreement or even a framework to achieve one.
“For Elon Musk, if he believes it, even thinks about it, then it’s true, no matter how objectively false or exaggerated it may be,” Porritt said. “That can work in his companies. That’s not a problem for this lawsuit. But it doesn’t work on securities markets or publicly traded companies. Securities markets have rules that dictate what you can and can’t say. And one of those ground rules is that what you say must be true and accurate.”
Alex Spiro, representing Musk, countered, stating during his closing arguments that funding was not the problem at all and that Musk knew he could get it if needed. Spiro instead be on a blog post several weeks after Musk’s tweets explaining that Musk would not take Tesla private because existing shareholders thought it was better off as a publicly traded company.
While Musk avoided a hefty compensation bill, financing the secured tweet cost him.
The U.S. Securities and Exchange Commission filed a complaint in September 2018 alleging that Musk lied when he tweeted that he had “secured funding” for a private takeover of the company for $420 per share. The complaint was filed after the Musk and Tesla board abruptly walked away from an agreement with the SEC. Not only did the board back out of the agreement, it issued a bold statement of support for Musk after the suit was filed.
In the end, a settlement was reached, albeit with heavier penalties than the original agreement. In the settlement reached on Sept. 29, Musk agreed to step down as chairman of Tesla and pay a $20 million fine. Tesla agreed to pay a separate $20 million fine.