Elon Musk speaks out in class action lawsuit over controversial 2018 tweet

On Friday, Tesla CEO Elon Musk appeared in a California courtroom to testify in a lawsuit over his controversial “funding secured” tweet in 2018. Musk said at the time that he was thinking about taking Tesla private at $420 a share.

Tesla, Musk and the company’s directors are facing shareholder lawsuit over his infamous 2018 tweet saying he was thinking about taking Tesla private at $420 a share. It wasn’t a problem.

But he ended the tweet with two words that cost the CEO millions of dollars in fines and legal fees: “Funding secured.”

Musk spoke to Saudi Arabia’s Sovereign Wealth Fund executives about the funding he would need to take Tesla private, money that wasn’t “backed” at all.

Tesla shares initially rose 11% on the day of his tweet, but they never hit the $420 level they expected, peaking that day at $387.46. And they soon dropped well below their price to a $344 tweet, hitting $263.24 a month later when it became clear the funding was far from secure, sparking a lawsuit.

A year later, Tesla shares are up sharply, up 1,520% since the “secured funding” tweet, but some investors say they’ve already lost because they sold Tesla shares to protect themselves.

Lead plaintiff Glen Littleton said on Wednesday that he lost more than 75% of his investment following Musk’s “funding secured” tweet.

“I wanted to secure my livelihood, it was a threat to my livelihood,” he said of the derailment of Musk’s $420-per-share deal with the Saudi Arabian Public Investment Fund.

On Friday, Musk said his tweets do not affect the rise or fall of Tesla’s stock.

“The causal relationship clearly doesn’t exist just because of the tweet,” Musk said.

Musk also argued that, due to the limitations of the nature of Twitter, it was difficult to be as detailed as possible in the official financial records, which are detailed, regulated, and reviewed by financial disclosure experts.

Guhan Subramanian, a Harvard law professor and expert witness for the plaintiff, said earlier Friday that Musk’s tweet and the proposed deal was an example of egregious corporate governance.

“The lack of fencing is very disturbing,” Subramanian said of Musk’s Twitter account. Musk said on Friday that no one at Tesla looked at his tweets in 2018 before he posted them.

Subramanian described that when public companies go private, as Musk suggested, it is a much more extensive and rigorous process than the one Musk and Tesla went through. As an example, he pointed to Dell going private in 2013. As a rule, a special committee is formed, and consultants and advisers work for several months. Boards of directors usually approve an announcement that a company has received an offer to go private, which was not the case with Tesla.

In addition, he said, the CEO usually does not announce any proposal to take the company private due to concerns about conflicts of interest.

Musk’s lawyer, Alex Spiro, said on Wednesday that the CEO’s choice of word was wrong, but it’s not a scam.

Musk’s tweet previously sparked a civil lawsuit from the Securities and Exchange Commission, a federal agency that protects investors. An agreement was reached whereby Musk and Tesla paid fines of $20 million each, and Musk relinquished his chairmanship. Under the deal, Musk also had to review tweets before they were posted.

Musk’s testimony is expected to continue on Monday. The trial is expected to last until February 3.

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