Elon Musk Found not Liable in Federal Trial over ‘Funding Secured’ Tweet

By Faiz Siddiqui / The Washington Post

13:32 JST, February 4, 2023

SAN FRANCISCO – Elon Musk was found not liable for investors’ losses in a securities fraud trial over his 2018 tweet that he had “Funding secured” to take Tesla private at $420 per share, continuing the tech mogul’s streak of favorable verdicts over his erratic behavior.

Plaintiff Glen Littleton and fellow members of the class action sued Musk and Tesla, including its board of directors, over the tweet and Musk’s subsequent statements, alleging the notion that financing was in place had been false and constituted fraud. They said shareholders suffered steep financial harms because of panicked sales in the 10 days following the tweet, as Tesla and Musk engaged in damage control.

Musk’s attorney Alex Spiro had argued Musk’s tweet did not constitute the entirety of what was disclosed about the matter, and while it was not necessarily accurate it did not constitute fraud.

In a tweet after the verdict, Musk said: “Thank goodness, the wisdom of the people has prevailed! I am deeply appreciative of the jury’s unanimous finding of innocence in the Tesla 420 take-private case.”

For Musk, the favorable verdict takes some pressure off his finances at a time when he’s on the hook for billions in loans for his purchase of Twitter. It continues a string of verdicts in Musk’s favor, from the shareholder lawsuit over Tesla’s purchase of embattled solar energy company SolarCity, and Musk’s defamation lawsuit over calling a Thai cave rescue volunteer a “pedo guy.”

Over three days last month, Musk sat for testimony in the case, arguing that his tweets were not comprehensive and that not everyone believes what he says when he posts. He said that his funding was secured because he owns a large stake in SpaceX, the rocket-building firm he leads, an argument plaintiffs disputed because it was not in his initial deposition.

Instead, they alleged, Musk’s tweets were sent after he met with the head of the Saudi Public Investment Fund, the country’s sovereign wealth fund, where any discussion about financing was far from definitive. Musk countered, however, that the Saudis did indeed express a commitment to take Tesla private and had the funding to back it up, though the parties never settled on a deal.

On Aug. 7, 2018, Musk posted a tweet reading: “Am considering taking Tesla private at $420. Funding secured.” Court documents also referenced a second Musk tweet from later that day, which read: “Investor support is confirmed. Only reason this is not certain is that it’s contingent on a shareholder vote.”

Musk’s claim unraveled in the ensuing days, however.

Musk said on Aug. 13, 2018, that he had been in discussions with the Saudi wealth fund about taking Tesla private in a deal that would value the company above $70 billion, but the post was not definitive. On Aug. 24, 2018, Musk reversed course, saying he planned to keep Tesla public.

The Securities and Exchange Commission sued Musk that September for allegedly lying to investors when he declared “Funding secured.” Musk and Tesla settled, and each paid $20 million fines, while Musk agreed to step aside as Tesla board chairman.

His replacement in that seat, Robyn Denholm, testified in the recent trial alongside others including Tesla executives and current and former board members.

Judge Edward M. Chen had already ruled the declaration of “Funding secured” untrue, leaving jurors to determine whether it was material to subsequent market moves, the extent to which it was relied on, and the liability of Musk and Tesla board members in potential damages.

In closing arguments, Musk attorney Spiro urged the jurors not to compromise on their verdict – for example, by finding Musk liable but not the Tesla board. Rather, he pushed them to make a firm judgment on the materiality of the tweet. He argued that Musk’s tweet may have been “technically inaccurate” but that the case hinged on his “consideration” of taking Tesla private.

“Just because it’s a bad tweet, doesn’t mean it’s fraud,” he said.

The plaintiff’s attorneys argued that Musk should be subject to rules like anyone else and that his behavior constituted fraud.

“This is about rules,” attorney Nicholas Porritt said. “This is about applying rules to billionaires like Elon Musk.”

He asked whether the rules should apply, “or can Elon Musk do whatever he wants and not face the consequences?”

“We’re just disappointed,” said Porritt, answering questions as he was leaving the courtroom after the verdict. “I think we presented a very good case and I think we presented the case as well as we could.”

Porritt said he would consider what his team is going to do next.

Spiro, Musk’s attorney, said after the verdict “the jury got it right.” His team embraced in celebration after it was read out.

Jurors deliberated for about two hours before delivering their verdict. After the verdict was read, one of jurors said the plaintiffs’ case often seemed disorganized.

“I think the defense did a better job presenting that he was presenting what he believed to be true,” one of the jurors said. He added that the plaintiffs’ overall message simply “didn’t land.”

The favorable verdict for Musk was particularly notable because it happened in San Francisco, where he had earlier requested a change of venue because he did not believe a fair jury could be assembled. Twitter, which recently laid off more than half of its staff, has its headquarter less than a 10-minute walk from the courthouse.

Musk had appeared to face an uphill battle from the start of the trial after Chen ruled his “Funding secured” declaration was untrue. But the jurors’ verdict suggested that they were not persuaded that his statement was material to investors’ reactive trades – and ultimately their losses.