Tesla Shareholders Go To Trial Over Elon Musk’s Tweet — And These Lawsuits Could Be Next

Topline

Tesla CEO Elon Musk and some of the company’s shareholders will go to trial Tuesday in a case stemming from a 2018 tweet in which Musk claimed to be taking the company private, potentially the first in a series of major shareholder lawsuits Musk could face as Twitter stockholders have also filed suit against the billionaire for his takeover of the social media giant.

Elon Musk attends The 2022 Met Gala on May 2, 2022 in New York City.

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Key Facts

A trial started Tuesday in California after Tesla shareholders sued Musk over his 2018 tweet claiming he was “considering taking Tesla private” and had the “funding secured,” which led the company’s share price to spike before dropping when his claims didn’t actually amount to anything—and investors lost money.

Twitter shareholders also sued Musk in California in May, after he had entered into a purchase agreement with the company’s board, alleging Musk intentionally tried to “drive Twitter’s stock down substantially” through tweets and public statements in order to back out of or renegotiate the deal.

A second California-based lawsuit filed in October similarly alleges Musk used public statements and tweets to intentionally decrease Twitter’s stock price, this time taking aim at the Tesla CEO’s allegedly “false and misleading statements” around whether or not he was going through with the Twitter deal before it ultimately took place in October.

The class-action lawsuit was filed on behalf of stockholders who lost money by selling their shares when Musk tanked the company’s stock price by questioning the deal through his allegedly false public statements, before he ultimately went through with the deal and the stock price went back up.

A Twitter shareholder sued Musk in New York in April also on behalf of Twitter investors who had sold their shares, alleging Musk failed to disclose his ownership stake in Twitter within the deadline mandated by the Securities Exchange Commission, which allegedly allowed him to buy more Twitter shares at a lower price before he disclosed it and the price went up.

Twitter shareholder Luigi Crispo sued Musk in July for breach of contract in an attempt to force him to complete the Twitter deal, and though much of the lawsuit was thrown out in October, some of Crispo’s claims are still moving forward.

What To Watch For

The four Twitter shareholder lawsuits against Musk remain pending, and courts have yet to decide whether to dismiss the cases or if they should move forward. In the Tesla lawsuit, Musk stands to possibly lose billions of dollars that would have to be paid out to shareholders if he loses in court, Bloomberg notes. Opening statements in the trial are expected to begin as soon as Tuesday, following jury selection. Musk has denied the allegations against him in the Twitter lawsuits and the suggestion he acted recklessly with his 2018 Tesla tweet.

Forbes Valuation

$150.1 billion. That’s Musk’s net worth as of Tuesday, according to Forbes’ real-time net worth tracker, making him the second-richest person in the world following Bernard Arnault, chairman and CEO of LVMH Moët Hennessy Louis Vuitton, and his family. Musk’s fortune has already taken a hit in recent months as a result of his Twitter takeover, as he lost his status as the richest person in the world and saw his net worth drop below $200 billion in November. The losses are tied to Tesla’s stock dropping amid the Twitter deal, which sparked fears about Musk being distracted from his CEO duties at the company and required him to sell off $15.4 million in Tesla stock to finance the $44 billion deal.

Tangent

Musk already went to trial in November in a separate Tesla shareholder lawsuit that took aim at the pay package that the Tesla board awarded to him in 2018, which CNN noted has a net value of $50.9 million today. The trial, which concerns whether the pay package was unjustly high, wrapped up in mid-November, but the Delaware judge presiding over the case has not yet announced the verdict.

Key Background

Tesla shareholders first sued Musk in 2018, days after Musk tweeted on August 7 about his purported plan to take the company private. The tweet has already resulted in a SEC complaint against Musk that led him to step down as the company’s chairman and requires lawyers at Tesla to approve the CEO’s tweets about the company before they’re shared, and the judge overseeing the Tesla shareholder lawsuit has already ruled that Musk “acted recklessly” with his tweet. Musk closed the deal to acquire Twitter in October following months of turmoil after he first disclosed his majority stake in the company in April, including legal battles between Musk and the company after he initially tried to back out of the deal and was sued by Twitter before later reversing his decision.