SAN FRANCISCO — Elon Musk’s federal shareholdertrial began Tuesday, as he and Tesla defend against claims of securities fraud from investors over Musk’s 2018 declaration he had “Funding secured” to take the electric vehicle company private.
The trial kicked off with jury selection in U.S. District Court in San Francisco and is expected to take about three weeks.
Shareholders are suing the Tesla CEO under federal securities law over his 2018 tweets, which they allege were false and misleading statements that caused them financial harm and losses. The court has already deemed the tweets to be “untrue.” The investors seek to hold Musk and Tesla’s board members liable for damages.
It’s the latest challenge to Musk’s vast empire and fortune, months after he took over another major tech company, Twitter, and installed himself as chief executive. Since then, his wealth has plummeted and Musk was recognized by Guinness World Records for sustaining the “worst loss of fortune in history” — shedding about $200 billion over one year. He has fallen to second place in a ranking of the world’s richest people,according to Forbes.
Musk sent the now-infamous tweet on Aug. 7, 2018: “Am considering taking Tesla private at $420. Funding secured.” He followed it up with a subsequent post reading, “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote” — the other tweet referenced in court documents.
Musk has defended himself over claims his tweets were false, saying last year that he did have funding lined up at the time — from the Saudi Public Investment Fund, which Musk said had “committed unequivocally” to taking Tesla private. At that time, Musk had already settled with the Securities and Exchange Commission over the matter, paid a $20 million fine and relinquished his board chairmanship of Tesla, which paid a $20 million fine of its own.
The court in the shareholder suit has instructed jurors to assume Musk’s declarations of “Funding secured” and “Investor support is confirmed” are untrue.
The suit, initially brought in 2018, is a class action from Tesla investors alleging they lost huge sums of money after Tesla’s stock price soared and fell following the “Funding secured” tweet and the SEC’s subsequent investigation.
The surge in the share price cost Tesla short sellers hundreds of millions of dollars “when they were forced thereafter to cover their positions by purchasing Tesla securities at artificially inflated prices,” read the initial 2018 complaint.
Musk and his attorney did not immediately respond to a request for comment.
In the lead-up to the trial, Musk — who recently moved from California to Texas — mounted an unsuccessful effort to have the trial moved from San Francisco to the Western District of Texas, arguing media coverage and publicity surrounding Musk’s business moves had “biased” the jury pool. (Musk has laid off more than half of the staff of 7,500 since taking over Twitter, which is headquartered in San Francisco.)
Musk attorney Alex Spiro appeared in court Tuesday morning and raised questions about the potential fairness of some jurors, seeking to move some outside of the larger jury pool for questioning to avoid influencing the rest of the panel. Judge Edward M. Chen agreed to separate out for individual questioning those with strong views.
Some prospective jurors had been critical of Musk, using adjectives such as “irrational” and “arrogant” to describe him. Those prospective jurors were questioned individually to determine their fitness to serve on the panel.
The jury selection process highlighted how supercharged the discussion around Musk has become since the polarizing tech figure took over the social media platform.
Some pointed out how their perceptions of Musk had shifted, citing news reports they’d read, their knowledge of the Twitter layoffs and Musk’s tweets.
Spiro peppered one prospective juror with questions after the person called “most” of Musk’s tweets ill-informed and “for shock value,” according to the court testimony.
“This case is about a tweet and a tweet about what he was thinking at the time when he made the tweet,” Spiro said. “If a person comes into that case with a view that a couple of his tweets were ill-informed for shock value and the case is about that, the concern would be … that you could sway a little bit — implicitly.”
Among the pool of about 50 prospective jurors, fewer than 10 were subject to the individual questioning.
“His persona has changed in the last few years,” said one prospective juror who had expressed a negative view of Musk in questioning.
Those prospective jurors cited the layoffs at Twitter, their objections to Musk allowing some who had promoted hate speech back on the site, and Musk’s push to keep Tesla’s manufacturing plant open amid coronavirus restrictions in California, for example.
During jury selection, one prospective juror who works for a software firm that does business with EV manufacturers raised concerns about how the outcome of the case could negatively affect the company he works for.
Spiro pushed for certain topics to be omitted from the plaintiff’s opening statements: Musk’s disputes with the SEC and “recent events at Twitter,” indicating that he does not want the trial to be influenced by Musk’s current public image. The plaintiffs agreed broadly to Spiro’s terms.
Musk faced other fallout from the 2018 tweets, as concerns mounted over his fitness to lead Tesla and his penchant for controversy proved a drag on the company’s share price.
But a year later, many of Musk’s legal and financial issues were resolving in quick succession. Tesla stock rallied in late 2019 and skyrocketed in 2020, and Musk emerged from the economic ravages of the pandemic as the world’s richest person leading the most valuable car company.
The list of potential witnesses, which was read by Chen to prospective jurors, is a who’s who of individuals in Musk’s circle and those with whom he has worked closely at Tesla.
The list includes Musk himself; his brother, Kimbal, a Tesla board member; Musk’s close friend and Oracle co-founder Larry Ellison; former Tesla chief financial officer Deepak Ahuja; and James Murdoch, the Tesla board member who is one of media mogul Rupert Murdoch’s sons.