Elon Musk is already in a difficult position due to the fallout from a company that he did take private. Now he will have to defend himself in court over a company that he did not take private.
Musk wanted Tesla, the electric automaker he runs and where he makes most of his money and fame. It was before buying Twitter for $44bn in October.
Musk tweeted on August 7 that he had raised $72b to buy Tesla. He also elaborated on this claim in a subsequent statement, giving the impression that a deal was imminent.
However, the acquisition never occurred. Therefore Musk will have to give an under-oath explanation for his behavior in a federal court in San Francisco, California, United States. Class action investors who held Tesla stock for 10 days in August 2018 have initiated this trial, which will begin with jury selection on Tuesday.
Musk’s tweets boosted Tesla’s stock price, but a week later, it became clear that he didn’t have the money for a buyout. Because of this, he gave up on his plan to turn the automaker into a private company. This led to a $40 million settlement with US securities regulators and his resignation as the company’s chairman.
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Musk has since claimed that he was pressured into agreeing to that settlement. However, he was under the impression that he had secured funding for a Tesla buyout during his discussions with the Saudi Arabian Public Investment Fund.
The outcome of the trial may depend on how the jury thinks Musk felt when he sent tweets that US District Judge Edward Chen has already said were lies.
On Friday, Chen rejected Musk’s request to move the trial to Texas, where Tesla moved its headquarters in 2021. Musk had said that bad news about his purchase of Twitter had tainted the jury pool in the San Francisco Bay Area of California.
Musk’s management of Twitter has turned out to be unpopular with Tesla’s current stockholders. They worry that he is spending less time running the automaker as competition grows. Because of these worries, Tesla’s stock dropped by 65 percent last year. It wiped out more than $700 billion in shareholder wealth. The class-action lawsuit covers the $14 billion difference between the company’s high and low stock prices (August 7–17, 2018).
The lawsuit is based on the idea that Tesla’s stock wouldn’t have moved so much if Elon Musk hadn’t said he might buy the company for $420 per share. Since then, Tesla’s stock has split twice. This means that the $420 price is now worth $28. The shares ended the week at $122.40, which is less than their peak of $414.50 in November 2021. It was around this time when the split was taken into account.
After Elon Musk gave up on the idea of buying out Tesla, the company fixed a problem with production. Car sales rose quickly, sending the company’s stock soaring and making Musk the world’s richest person until he bought Twitter. Musk is no longer the richest person in the world because the stock market didn’t like how he ran Twitter.
Some of Tesla’s current and former top executives and board members, such as Oracle co-founder Larry Ellison and James Murdoch, the son of media mogul Rupert Murdoch, are on the list of witnesses, which should give us a good idea of how Musk runs the company. The drama may reveal Musk’s relationship with his brother Kimbal, a potential trial witness. It will run through February 1.
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