The trial of the century has begun. Tesla CEO, Elon Musk, is facing a lawsuit that will determine whether or not he cheated investors by claiming in 2018 tweets to have secured financing to take Tesla private. A nine-person jury was summoned Tuesday for the case that is expected to include Musk’s testimony explaining his thinking while tweeting on Twitter, which he now owns.
The Tweet Heard ‘Round the World
Following Musk’s tweets, the company’s stock price rallied, but ended abruptly a week later when it became clear he didn’t have the funds for a buyout. The investors then sued him, saying Tesla shares would not have fluctuated so widely in value without him dangling the prospect of buying the company for $420 per share. The tweet in question was sent on Aug. 7, 2018, claiming Musk had secured financial backing for a $72 billion buyout of Tesla, followed by a statement implying a deal was imminent.
The SEC Steps In
Also, Musk’s tweet was questioned by securities regulators, who concluded that it was unethical and untrue. His resignation as Tesla chairman and payment of $40 million was part of a settlement. Musk has since contended that the settlement was forced upon him and maintained that he believed he had secured funding from the Public Investment Fund of Saudi Arabia.
Musk’s Defense
Musk’s lawyers will likely argue that his tweets were not meant to be taken literally and that he had a good-faith belief that the buyout would happen. It’s also possible that the defense may bring up the fact that Musk has a history of making controversial statements on Twitter and that investors should have been aware of this when buying or selling Tesla stock.
The Challenge of Finding Impartial Jurors
During Tuesday’s laborious jury selection, it became apparent that finding jurors without strong feelings about Musk would be challenging. Some prospective jurors had expressed extreme misgivings or enthusiasm about Musk in pretrial questionnaires, which the judge flagged. A jury pool of seven jurors was questioned individually to reduce the chance of influencing their opinions. Seven jurors were grilled by Chen and lawyers for the shareholders and Musk, who described Musk as “arrogant,” “narcissistic,” “unpredictable,” “a little off his rocker,” “a mercenary,” and “a genius.”
Musk’s Leadership of Twitter Affecting Tesla?
Tesla’s current stockholders are concerned that Musk has been devoting less time to the automaker at a time when competition is intensifying as a result of his leadership of Twitter. The stock of Tesla declined by 65% percent last year, wiping out more than $700 billion in shareholder wealth – much more than the swing of $14 billion between the company’s high and low stock prices between August 7 and Aug. 17, 2018, the period covered in the lawsuit.
The Outcome of the Trial
The trial is expected to last for about three weeks, during which time the jury will hear evidence and testimony from both sides and ultimately decide whether or not Musk cheated investors with his tweets. Depending on the trial’s outcome, Musk and Tesla may be required to pay damages to investors, and Musk may also face further consequences such as fines or penalties. The trial is being closely watched by many in the business and legal community, as it could set a precedent for how CEOs and other corporate leaders use social media to communicate with investors and the public.
Musk’s Twitter Purchase
It’s worth noting that the trial is also taking place amid Musk’s recent acquisition of Twitter, the platform on which he made the controversial tweets in question. Musk’s leadership of Twitter is unpopular with Tesla’s current shareholders, who are concerned he is devoting less time to the automaker as competition intensifies. These concerns have only been compounded by the fact that Tesla’s stock declined by 65% last year, wiping out more than $700 billion in shareholder wealth.
Liar Liar, Tweets on Fire?
As the trial continues, the outcome remains uncertain. The jury’s interpretation of Musk’s motive for the tweets will be crucial in determining whether or not he cheated investors. Will the jury see him as a genius who simply made a mistake or as a liar who lied to boost the stock price?
Only time will tell. But one thing is for sure; this trial will significantly impact Musk, Tesla, and the way companies use social media in the future.