A jury decided on Friday that Elon Musk was not liable for investor losses after he tweeted that he had secured funding to take Tesla private in 2018.
Investors had sued Mr. Musk, Tesla, and the company’s board, claiming that his statements about his nascent plan to take the electric car company private had devastated their finances. However, during the last three weeks of a federal civil trial in San Francisco, lawyers for Tesla and Mr. Musk, the automaker’s CEO, have argued that he was such a successful businessman that he could have easily obtained financing to take Tesla private.
Mr. Musk’s Twitter posts were at the heart of the case. On August 7, 2018, he tweeted, “Am considering taking Tesla private at $420. “Funding has been secured.” “Investor support is confirmed,” he wrote later. The only reason this is not certain is that it is subject to a shareholder vote.” Tesla’s stock price rose following those posts, only to plummet after the proposal fell through in less than three weeks.
Edward M. Chen, the federal judge in the case, had already ruled that “funding secured” and Mr. Musk’s second statement were false, and that Mr. Musk was reckless in posting them.
The jury of seven men and two women deliberated for about an hour before concluding that Mr. Musk’s statements were not responsible for the investors’ losses. Mr. Musk can now claim vindication for a difficult period in his professional life, when Tesla was struggling to increase production of its most affordable vehicle, the Model 3.
“Given the stakes involved, I thought he was crazy to try his chances at trial,” said Adam C. Pritchard, a law professor at the University of Michigan, referring to the judge’s pretrial rulings. “In that situation, you’re fighting with one hand behind your back — and he wins.”
If he had lost, Mr. Musk and Tesla could have been forced to pay billions of dollars in damages to investors who claimed they lost money when the company’s stock rose after his tweets and then fell after his plan failed.
“Thank goodness, the people’s wisdom has prevailed!” Mr. Musk responded to the verdict on Twitter, saying he was “deeply appreciative” of the decision.
In an email, plaintiffs’ lawyer Nicholas Porritt stated, “We are disappointed with the verdict and considering next steps.”
Following the reading of the verdict, three jurors answered questions from plaintiffs’ lawyers. According to one male juror, their arguments were difficult to follow and appeared disorganized at times.
“There was nothing there to give me a ‘aha’ moment,” he said, adding later, “Elon Musk is a guy who could sneeze and the stock market would react.”
Throughout the trial, the lawyers for the investors argued that Mr. Musk knew Tesla was not going private because no individuals or investment funds had committed specific amounts of money to the transaction. According to the lawyers, there was also no definitive structure for a private Tesla or a clear path to regulatory approval for the plan.
“This case is about whether or not the rules that apply to everyone else should apply to Elon Musk,” Mr. Porritt said during closing arguments. He went on to say that the stock market “only works because there are rules that keep people honest, so people can trust market information.”
Mr. Musk’s and Tesla’s legal teams argued that the company’s share price may have shifted because Mr. Musk stated that he was considering taking Tesla private, which they claim was true. They’ve also claimed that funding was plentiful, but Mr. Musk didn’t have exact figures because he didn’t know how many shareholders would want to keep owning Tesla shares once it was delisted from the stock exchange.
“Funding was not an issue,” said Alex Spiro, Mr. Musk’s and Tesla’s lawyer. He went on to say that the deal fell through because “his motive was to do right by the shareholders.”
A year after Mr. Musk floated the idea of taking Tesla private, the company’s stock price began to rise as it put its production issues behind it, and it was once one of the best-performing large-company stocks. Its stock dropped 65 percent last year as competition in the electric car market heated up and Tesla slashed car prices. However, the share price has increased by around 50% this year.
The case was settled less than four months after Mr. Musk purchased Twitter, whose headquarters are less than a half-mile from the federal court in San Francisco.
Mr. Musk and Tesla settled a separate lawsuit with the Securities and Exchange Commission in 2018 regarding Mr. Musk’s plan to take Tesla private. They paid the S.E.C. $40 million in fines, and Mr. Musk agreed to resign as Tesla’s chairman and allow a lawyer to review some Tesla statements before Mr. Musk posted them on social media.
Mr. Musk is currently attempting to have parts of that agreement terminated in the United States Court of Appeals for the Second Circuit.
Mr. Pritchard, the law professor, said he did not believe Mr. Musk’s victory would prompt other CEOs to make rash statements that could affect stock prices. “In situations like this, most CEOs will do what their general counsels tell them to do,” he said.
According to legal experts, the majority of executives and companies would have settled the investor lawsuit. Mr. Musk, on the other hand, has frequently expressed a willingness to fight lawsuits in court. A federal jury in Los Angeles ruled in 2019 that he had not defamed a British cave diver by calling him a “pedo guy” on Twitter. The two men were embroiled in a bitter feud over the rescue of children trapped in a cave in Thailand a year before.
A Delaware judge is expected to rule soon on a lawsuit filed by a Tesla shareholder who claims the company’s board of directors did not act independently of Mr. Musk when devising a lucrative compensation package for him in 2018. The shareholder has asked the court to overturn the pay deal, which allowed Mr. Musk to buy nearly $50 billion in Tesla stock.