In kitchens worldwide, Teflon-coated pans are lauded for their non-stick properties. Similarly, Elon Musk, whom fans have branded “Teflon Elon” avoided an egg on his face on February 3, 2023, after the jury cleared him of all claims stemming from his “[f]unding secured” tweet concerning taking Tesla private – which did not occur.
The Tweet
The tweet in question is from August 7, 2018, where Mr. Musk explicitly stated: “Am considering taking Tesla private at $420. Funding secured[]”, to his 22 million followers. At the time of his tweet, the Tesla stock price had a par value of around $340, meaning that the buyout price of $420 represented a 20% premium – or price paid above par value. The tweet caused investors to buy additional shares since any price below the advertised $420 represented easy profits. Tesla’s stock price continued to rise on heightened trading through August 16, 2018, when Mr. Musk revealed in a New York Times interview that the privatization of Tesla would not materialize. The price of Tesla shares tumbled because of this news, and investors lost billions.
The Fallout
The Securities and Exchange Commission (SEC) took notice of Musk’s tweet. It charged Musk with securities fraud and Tesla for its failure to maintain controls and procedures to ensure material information is properly disclosed in its filings. Musk and Tesla quickly settled with the SEC. Musk and Tesla agreed to pay a combined fine of $40 million, while Musk agreed to step down as Tesla’s Chairman, and Tesla agreed to implement controls to oversee Musk’s communications. As part of the SEC settlement, Musk and Tesla did not admit or deny the allegations made by the SEC – a strategic play so that no findings in the government’s case could be used against them in civil litigation. Musk has since contended he entered that settlement under duress and maintained he believed he had locked up financial backing for a Tesla buyout during meetings with representatives from Saudi Arabia’s Public Investment Fund. Musk would later turn this explanation into his defense theory in the pending civil trial. Shareholders filed a class action complaint against Musk for the misleading statement in his August 7, 2018 tweet and the Tesla board members for their failure to oversee Musk’s statement. The complaint mirrored the allegations of the SEC complaints.
The Trial
During the three-week jury trial in San Francisco, nine jurors listened to testimony from several witnesses. The central issue focused on whether Musk sincerely believed he had secured the funding necessary to take Tesla private. Musk spent nearly nine hours on the witness stand recounting to the jurors that the tweet was truthful, that he had lined up the financing via a verbal commitment – a handshake deal – from representatives from Saudi Arabia’s Public Investment Fund. Musk then explained that the Saudi fund had backpaddled on its commitment, a fact that could not be ascertained as the governor of the Saudi fund, Yasir Al-Rumayyan, refused to testify in the case and could not be subpoenaed due to the California court not having jurisdiction over the Saudi international. Musk’s story was partially corroborated by James Murdoch, son of media mogul Rupert Murdoch and ex-Tesla board member, who testified that such handshake deals were standard in his experience with companies located in the middle east.
At the end of the three-week trial, the jury was asked to decide which story they believed – that of Musk or that of the shareholders. It took them only two hours to come to their decision. While the jury verdict can be appealed, at this time, it looks as if Musk has once again managed to slip away from a lawsuit unscathed.
What is Next
Unlike other executives, Musk thrives in the “Twittersphere.” His long history of utilizing Twitter as his main form of communication, whether personal or business, is unique in the c-level world and doubtful to change. This fresh victory, combined with the fact that he is now the Twitter boss with 129 million followers, likely means he may land himself in hot water soon.
The views and opinions expressed above are my own and do not reflect that of any other party.
