Tesla CEO Elon Musk plans to reveal something new at 2 p.m. Pacific Time today.
Elon Musk lost a key round in legal battle with a group of investors angered by one the Tesla CEO’s stray tweets.
A federal judge in San Francisco said a lawsuit against Tesla Inc. and Musk can go forward to trial. The lawsuit claims that Musk – and by extension Tesla – misled shareholders when Musk tweeted he had secured funding to take the electric car company private in a $72 billion transaction.
The proposed class action covers shareholders who bought and sold Tesla stock from Aug. 7–17, 2018. The transaction touted in the tweet never came off.
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Musk used Twitter on Aug. 7, 2018, to announce, “Am considering taking Tesla private at $420. Funding secured.”
Biz reporter Liz Claman pushed Musk for answers about taking the company private.
Some investors called the tweet a ploy to squeeze short sellers, long an irritant for Musk, who were betting Tesla’s stock would fall.
U.S. District Judge Edward Chen ruled that shareholders could try to prove Musk intended to defraud them with his Aug. 7 tweet and follow-up messages about plans to go private.
The judge said shareholders also could also try to prove Musk’s tweet was the “proximate cause” of volatility in Tesla’s stock price that caused billions of dollars of losses. Tesla had no immediate comment on the judge’s ruling.
(Shareholder $2.2B lawsuit against Musk halted after trial postponed due to coronavirus.)
Musk’s tweet helped push Tesla’s stock price more than 13% higher than the prior day’s close. But it soon gave those gains back, and by Aug. 17, it had fallen 11% below where it was before the original tweet.
Musk then tweeted on Aug. 24, 2018, that Tesla would remain public. A month later, he agreed to pay a $20 million civil fine to settle fraud charges by the U.S. Securities and Exchange Commission.
Musk slammed the SEC in this tweet, calling the agency the Shortseller Enrichment Commission, earning criticism from friend and foe.
The SEC also required Musk to step down as chairman, and Tesla lawyers to vet some of his tweets in advance. Tesla reached a separate $20 million settlement with the regulator.
In letting the shareholder case, which combined nine lawsuits, go forward, Chen said reasonable investors could have viewed Musk’s Aug. 7 tweet as signaling he had unconditionally obtained enough financing to take Tesla private. “So read, the statement is not true,” Chen wrote.
The judge rejected Tesla’s and Musk’s argument that the tweet was not false or misleading because Tesla’s directors would have still had to approve the transaction.
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However, as one of the company’s principal shareholders, Musk enjoyed effective control of the board and the company.