Image: Shoshana Gordon/Axios
In a San Francisco federal courtroom earlier this week, a jury was told its job was not to determine whether Tesla CEO Elon Musk’s 2018 tweets about the company’s privatization were false.
- Rather, the group must decide on his state of mind at the time.
Why it matters: The legal notion of scientist, or the state of mind required to be held liable for certain acts, is central to economic crimes such as fraud.
Catch up fast: Musk’s trial began on Wednesday, with both sides providing opening statements to the jury. Importantly, the jury assumes that Musk’s tweets were false statements and that he acted recklessly in posting them.
- However, the jury must determine whether he (and Tesla separately) knew these statements were false and whether they were material. That is, they could influence the actions of investors and cause financial damage.
What you say: “[Musk] knew that no investor had confirmed its support for the privatization of the transaction,” plaintiffs’ attorney told jurors after describing meetings Musk held with Saudi Arabia’s public pension fund.
- “Yet [he] tweeted Aug. 7: Investor support confirmed – past tense,” he added.
The other side: “What Mr. Musk was communicating was that he was serious about taking Tesla privately,” Musk’s attorney told jurors, and that the CEO understood that funding would not be an issue — just possibly the approval of the to get shareholders.
- He added: “Because of the circumstances, because of the leak [in the press about a possible take-private deal], because Mr. Musk was thinking out loud, he tweeted the wrong words. In his view, the funding was secured.”
Be smart: “Scientist is [a] really simple concept: it indicates the fact that the behavior is intentional and meant to be done,” Thomas Gorman, partner at Dorsey & Whitney, told Axios.
- There are three elements to proving fraud: that the statements were false, that the person knew they were false, and that the statements were material.
- In some cases, merely showing that the defendant acted in an extremely reckless manner—that is, regardless of whether what he said was true—suffices to prove scientists.
Between the lines: “In a court of law, you use email to prove that someone knew something or acted recklessly.” says Barnes & Thornburg partner David Slovick. “[There’s] almost always an email or an internal report…or they have someone’s testimony on the inside.”
Elsewhere in Silicon Valley there is another case where the rule of law may be applicable. Disgraced former FTX CEO Sam Bankman-Fried has shared his running comment on “what happened” to newsletter service Substack, creating two posts this week.
- His insistence on continuing to speak publicly about the company has been generally perplexing given all the lawsuits he faces. But this could be about… you guessed it: scientists are leaving.
- From the earliest days of FTX’s collapse, Bankman-Fried has claimed that he failed to see the true state of the company’s finances and that he has long since retired from day-to-day management of Alameda Research’s trading activities.
Yes but: Already, portions of court documents contradict claims he did not know or believed otherwise.
- For example, Caroline Ellison, former CEO of Alameda, said in her hearing that last year she and Bankman-Fried prepared misleading financial reports for Alameda’s lenders.
- Meanwhile, government documents recently obtained by the NYT show that a senior FTX engineer alerted Bankman-Fried to Alameda’s improper use of funds, but was told “it was fine.”
- A spokesman for Bankman-Fried declined to comment.
The bottom line: Who knew what and when is the name of cheat tracking game.