Tesla (TSLA) CEO Elon Musk is expected to be subpoenaed as early as Friday in a federal trial in California to resolve billions of dollars in damages claims by Tesla shareholders against Musk and the company’s board of directors.
Tesla shareholders began their case in chief on Wednesday after Musk’s attorney issued an opening statement setting out the Tesla chief’s defense 2018 tweetand said he had “secured the funding” to take the electric vehicle company private.
On Friday, Timothy Fries of New Jersey, the second of two testifying Tesla shareholders, was called to the witness stand. Fries said that reliance on Musk’s tweet caused him to lose about $5,000 on Tesla stock trades.
“I assumed Elon was speaking for the board,” Fries said of Musk’s claim that he secured funding to privatize Tesla. Fries said he invested about $18,000 in Tesla on the day of the Aug. 7, 2018 tweet, and then sold it at a loss when the deal fell through.
Under cross-examination, Fries admitted that despite the tweet, he understood that a deal to privatize Tesla was not yet finalized.
“I knew that negotiations were still going on,” he replied when asked by Musk’s lawyer.
August 7, 2018 Tweet by Elon Musk
The class of Tesla shareholders that filed the lawsuit allege that Musk’s August 7, 2018 tweet about the funding was false and therefore violated US securities laws. They relied on the information to be true, they argue, resulting in trading losses over a 10-day period beginning on the day of the tweet.
Shareholders say the new information in the tweet sent Tesla’s stock price skyrocketing because the $420-per-share offer Musk tweeted represented a 20% premium to the retail price. The stock then fell below where it was before the tweet. (Tesla stock has since had two stock splits and currently trades at around $129 per share.)
“These tweets are informal, sporadic thoughts,” Musk’s attorney, Alex Spiro, told jurors Wednesday about the take-private deal that never went through. Musk’s choice of words may have been reckless, Spiro said, although the tweet reflected a “split-second decision” to benefit — not hurt — investors.
The story goes on
According to Spiro, at the time of the tweet, Musk had already held a series of private meetings with executives at the Public Investment Fund of Saudi Arabia. Fund executives, he said, shook hands to take Tesla private for $420 a share.
That commitment, Spiro said, prompted Musk on Aug. 2 to email Tesla’s board of directors a private, “informal” offer to acquire the company at that price. The offer, he added, positions Musk as a counterparty to his own directors.
“He considered more than just taking Tesla private,” Spiro told jurors about Musk’s thought process in creating the tweet. “He was the bidder.”
Elon Musk attends the opening ceremony of the new Tesla Gigafactory for electric cars in Gruenheide, Germany, March 22, 2022. Patrick Pleul/Pool via Portal
On Aug. 7, however, Musk’s responsibility to Tesla shareholders changed, Spiro said, as a report published in the Financial Times cited an anonymous source who revealed what Musk already knew — that the Kingdom of Saudi Arabia was buying shares on the open market , making its sovereign wealth fund one of Tesla’s major shareholders.
Knowing he had previously held non-public discussions with the fund and that shareholder information must not be selectively shared with shareholders, Musk abruptly tweeted the take-private opportunity, Spiro told jurors.
Spiro went on to say that everyone in the room at the time the Saudi fund committed to privatizing Tesla would support the deal, and that the fund’s executive in charge agreed to “do what needed to be done.” to privatize the company -battered EV company.
Spiro addressed a subsequent tweet from August 7, 2018 by Musk, who reiterated his “funding secured” post and said only shareholder approval was required to close the deal, as well as a same-day blog post providing additional details on contingencies on Tesla’s website.
The tweet was posted on Elon Musk’s Twitter account on August 7, 2018
The blog clarified that Tesla has not yet made a final decision on the take-private deal. And Spiro downplayed the word “just” in Musk’s secondary tweet, saying the lack of market reaction to Tesla’s blog post shows Musk’s tweets weren’t moving the often-volatile stock.
“These tweets … they are meaningful to the plaintiffs’ attorneys. They weren’t relevant to the market,” Spiro said.
The shareholders’ first witness, class representative Glen Littleton, took the stand Wednesday after both parties made opening statements.
Littleton testified that he liquidated his call and put options on Tesla when he heard about Musk’s first tweet.
When he saw the words “funding secured,” he said he started selling his positions because he was running out of money at Musk’s quoted $420 IPO price. Both sets of his options, Littleton said, would quickly drop to $0 if the deal went through.
In a separate case brought by the Securities and Exchange Commission in response to the funding tweet, Musk and Tesla have settled the matter and each paid a $20 million fine. Musk also agreed in the agreement to step down as Tesla CEO and have potentially “material” tweets reviewed by Tesla’s General Counsel before publication. Musk is currently trying to resolve that part of the settlement.
Musk is expected to testify following testimony from shareholder witness Harvard Law School professor Guhan Subramanian.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Follow Yahoo Finance on Twitter, Facebook, Instagram, flipboard, SmartNews, LinkedIn, youtubeand reddit.
Find live stock quotes and the latest business and financial news.