Tesla Defends Musk’s Take-Private Tweet in Billion-Dollar Suit

(Bloomberg) -- Elon Musk’s comments about taking Tesla Inc. private were “aspirational,” not fraudulent, the company argues in asking a judge to throw out a shareholder lawsuit over his infamous tweet from 1 1/2 years ago.

Investors claim the Twitter post on Aug. 7, 2018 -- “Am considering taking Tesla private at $420. Funding secured” -- was an intentional deception that jolted the electric-car maker’s stock price, causing billions of dollars in losses.

A court showdown set for Friday afternoon is one in a series of legal brawls for a controversy-stirring billionaire who has escaped relatively unscathed from the firestorms he’s created for himself -- including a jury’s verdict in December that Musk didn’t defame a British man who he called a “pedo guy” in a tweet.

But even if Tesla’s chief executive officer manages to beat the suit, he’s set to go to trial this month in another investor case. In that one he’s accused of overpaying to acquire SolarCity in 2016 and failing to disclose that the company was in deep financial trouble when he urged shareholders to approve the deal.

Tesla contends the shareholders disgruntled over the 2018 tweet are conveniently ignoring that Musk told his board just days earlier he wanted to take the company private. Musk repeated that desire in an email to employees after the tweet.

“Statements describing the possible structure Mr. Musk ‘envisioned,’ ‘hoped for,’ ‘intended’ and ‘would like’ were plainly aspirational,” Tesla argued in a San Francisco federal court filing ahead of a hearing over the company’s request to dismiss the case. “There is no dispute that this was Mr. Musk’s true aim.”

Tesla’s stock surged as much as 13% after the tweet, hammering short sellers who hadn’t covered their positions. Also suing are investors who read Musk’s message as a buy sign, only to see Tesla’s share price plummet when reality set in.

“Investors who had believed, like the financial analysts, that Musk was ‘serious and genuine,’ and purchased Tesla stock expecting a going-private transaction at $420 per share, lost billions of dollars,” according to a court filing.

Since the 2018 tweet, Tesla’s often volatile shares, which closed at a low of $178.79 in June 2019, are up more than 64% in 2020. Investor sentiment on Tesla has shifted dramatically since the company posted a surprise quarterly profit in October and began manufacturing Model 3 sedans at its new factory near Shanghai.

What Bloomberg Intelligence Says

“The case may settle for a fraction of the alleged billions of dollars in damages.”

-- Holly Froum, Analyst, Consumer/Industrials Litigation

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But the fallout from the tweet was significant, including both a probe by the Justice Department and an investigation by the U.S. Securities and Exchange Commission that ended with Musk and Tesla agreeing to pay $40 million while not admitting or denying wrongdoing. The regulator also imposed an unusual condition that forbids Musk from tweeting about Tesla’s financial condition without advance approval from a company lawyer.

One point of contention in the shareholder case is Musk’s email to employees that the company posted on its blog less than three hours after the tweet.

Tesla says that message demonstrates Musk’s “long-standing interest” in taking the company private.

But the suing investors claim -- just like the SEC -- that Tesla’s chief financial officer and other officers came up with the idea of “expounding on Musk’s initial tweet” in the blog.

“Tesla and Musk worked hand-in-hand in publishing and republishing the false and misleading information,” the investors allege.

The case is In re Tesla Inc. Securities Litigation, 18-cv-04865, U.S. District Court, Northern District of California (San Francisco).

To contact the reporters on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net;Dana Hull in San Francisco at dhull12@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, ;Craig Trudell at ctrudell1@bloomberg.net, Peter Blumberg, Steve Stroth

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