Elon Musk Haunted by More Legal Troubles

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Courtesy of NVIDIA Corporation (Flickr CC0)

Elon Musk has found himself yet again in court for his tweets. This time, the trial is about him possibly misleading people with statements he made in 2018.

For the past few months, Musk has been occupied with his new responsibilities as the owner of Twitter. He first made a big push to buy the social media site to ensure free speech was upheld on the platform. Then he wanted to back out of the deal, citing inaccuracies in Twitter’s finances among other reasons. Now, he has another problem keeping him busy while he juggles being the CEO of three different businesses.

Musk’s Vision for His Companies

On August 7, 2018, Musk tweeted about a potential deal he was “considering” regarding Tesla. It would involve taking the company private at $420 per share.

Investors were led to believe he had the funding ready to go according to a follow-up statement sent out to all employees. The Tesla Billionaire seemed to confirm that the buyout was near completion.

In the statement, he mentions that a final decision had not yet been reached. As a public company, Musk believed Tesla was being held back and had too much pressure on itself. Going private would eliminate the stress of quarterly reports and stock market changes that he viewed as distracting. He pointed to SpaceX as an example of how efficient Tesla could be as a private enterprise. Although owned by him, Musk intended to keep both companies separate but with similar business structures.

Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible.

Following in SpaceX’s footsteps, Tesla shareholders would have the opportunity to buy and sell their shares about every six months. At $420 a share, investors could have been rewarded with a 20% premium for their stock. It would have added to the 16% rise Tesla experienced in its Q2 earnings call. The buyout was going to be lucrative for everyone, not just the executives at the top. However, these plans never came to fruition.

The lead-up to the trial

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Courtesy of Steve Jurvetson (Flickr CC0)

After his tweets influenced a rise in stock value, the buyout appeared more uncertain, forcing Musk to walk back his plans. The ordeal ended in a $40 million settlement with federal securities regulators. He had to step down as Tesla’s chairman as a result.

The trial came about after one Tesla investor, Glen Littleton, filed a class-action lawsuit against top executives. It aimed to represent the interests of investors who held the stock for a 10-day period in August 2018.

The trial focuses on the language Musk used when discussing the proposed buyout. Littleton and others believe the stock would not have performed as well as it did without the prospect of a buyout up in the air. They accuse the SpaceX billionaire of costing investors billions in lost share value.

What to Expect On Tuesday

U.S. District Judge Edward Chen will be in charge of court proceedings taking place tomorrow in San Francisco. Last year, he stated that the claims in Musk’s tweets were false in his opinion. Chen also blocked a bid to move the trial from California to Texas last Friday. Now Musk will have to answer for his tweets in front of a jury he believes is influenced by the bad press from his Twitter takeover.

They will determine whether he told lies that may have been useful to investors if they were true. Many expect the trial to examine the way Musk manages his companies and provide an insight into their inner workings. As expected, the witness list includes past and present executives and board members like Oracle co-founder Larry Ellison. The trial is set to go on through February 1.

by Chiagozie Onyewuchi

Sources:

AP News: Elon Musk’s next drama: a trial over his tweets about Tesla; by Michael Liedtke
Tesla: Taking Tesla Private; by Elon Musk
The Wall Street Journal: Elon Musk, Tesla Poised for Trial Over 2018 Tweets Proposing to Take Car Maker Private; by Rebecca Elliott and Meghan Bobrowsky

Featured and Top Image Courtesy of NVIDIA Corporation’s Flickr Page – Creative Commons License
Inset Image Courtesy of Steve Jurvetson’s Flickr Page – Creative Commons License

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