Musk Testifying In "False Tweet" Trial, Shows Stress As Arguments Unravel

Musk appears to have been caught out by his casual approach to communicating about business, which might be ok for private individuals in certain circumstances, but not for the CEO of publicly registered companies subject to rules and laws governing their public statements. JL

Faiz Siddiqui reports in the Washington Post:

Musk is testifying in U.S. District Court as a defendant in a class-action securities fraud lawsuit brought by investors who allege they suffered billions in losses from Musk’s 2018 claim, which U.S. District Judge Edward M. Chen has already ruled untrue. Musk’s claim fell apart as it became clear that while Musk had been in communication with the Saudi Arabian sovereign wealth fund concerning a potential transaction, any deal and funding necessary to complete it were not a certainty. Testimony showed that as blowback to Musk’s statement piled up, Musk frantically pushed the head of the Saudi investment fund to back him up. (But) he replied (they) should work to “explore a potential transaction.”

Elon Musk took the stand Monday for his first full day of testimony in the federal shareholder trial over his 2018 declaration he had “Funding secured” to take Tesla private, arguing his stake in his private rocket company SpaceX justified his statement at the time — and that Saudi investors were “unequivocal” in their commitment to the transaction.

“I really have two big assets, which is Tesla and SpaceX. I believe with the SpaceX stock alone, I felt like funding was secured,” he said. “It’s very important for the jury to know my SpaceX shares alone would have meant that funding was secured. Very important.”

The Tesla CEO previously said that not all believe his tweets and that Twitter’s character limit does not allow for comprehensive statements, even if they are truthful, in around a half-hour on the witness stand Friday. Appearing shortly after 8:30 a.m. wearing a suit and black tie, Musk took the witness stand and answered further questions from a plaintiff’s attorney for hours.

 

Musk is testifying in U.S. District Court as a defendant in a class-action securities fraud lawsuit brought by investors who allege they suffered billions in losses from Musk’s 2018 claim, which U.S. District Judge Edward M. Chen has already ruled untrue.

On Aug. 7, 2018, Musk tweeted: “Am considering taking Tesla private at $420. Funding secured.” Court documents also reference a second tweet, sent later that day; reading: “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.”

Musk’s claim quickly fell apart as it soon became clear that while Musk had been in communication with the Saudi Arabian sovereign wealth fund concerning a potential take-private transaction at a price of around $70 billion, any deal and funding necessary to complete it were not a certainty. By Aug. 24 of that year, Musk said he planned to keep Tesla public.

 

On the stand Monday, Musk engaged in a testy back-and-forth with a plaintiff’s attorney who alleged Musk chose the $420 share price because he thought it was a joke his then-girlfriend would enjoy.

Musk shot back that the price was a coincidence.

“I think you’re being misleading here, sir,” he said. “420 was not chosen as a joke; it was chosen because it was a 20 percent premium over the Tesla stock price.”

Still, Musk acknowledged the significance of the number — which is often associated with marijuana, and which also played a part in Musk’s acquisition of Twitter at a price of $54.20 per share.

“There is some karma around 420, although I should question whether that is good or bad karma at this point,” Musk said, to muffled laughter in the courtroom.

As a plaintiffs attorney pressed him on the events of Aug. 7, 2018, Musk, from the witness stand, explained his thinking around sending the tweet — typed out from his car as he awaited boarding his private plane from a Los Angeles-area airport.

 

He had received an email from a company spokesman explaining that the Financial Times was preparing a story explaining that the Saudi Public Investment Fund had acquired a significant stake in Tesla. Critically, the email did not say the Financial Times was preparing to report on any plan to take Tesla private.

But Musk expressed concern about the possibility that the newspaper was aware of more than it was letting on, and he wanted to make investors aware of any possibility.

“Learning that they were going to write the story, it was a significant factor” in the tweet, he said. “It was the driving factor behind the tweet. ... This information was concerning because this information was not public.”

The testimony showed that as blowback to Musk’s statement piled up, Musk frantically pushed for the head of the public investment fund, Yasir al-Rumayyan, to back him up, in private text messages. He asked the head of the Saudi investment fund to confirm that he had been in discussions with Musk regarding a transaction to take Tesla private.

 

According to text messages shown in court, al-Rumayyan replied that his and Musk’s teams should work together to “explore a potential transaction.”

Musk thanked al-Rumayyan and urged him to make as much clear in statements to the media.

“This is like the least they could do,” Musk said in testimony. After hestating as he searched for the correct phrase, he settled on one to describe the PIF’s reaction: “This is ass covering, for lack of a better word.”

Musk, who appeared uncomfortable at times, complained of back pain and at one point apologized to the attorney questioning him.

“I had trouble sleeping last night, so unfortunately I am not at my best,” he said.

Musk grew agitated as the questioning stretched on. He termed his “Funding secured” statement “the infamous tweet.” At one point, the plaintiff’s attorney accidentally referred to the new Twitter CEO as “Mr. Tweet,” eliciting laughter in an otherwise tense courtroom.

 

Musk spoke quietly, at times straining to deliver his testimony.

“The [Public Investment Fund] unequivocally wanted to take Tesla private,” Musk said.

In a particularly heated exchange, Musk asked the attorney questioning him why al-Rumayyan had not been subject to the same treatment.

“The interesting question for you, sir, is why did you not subpoena him?” Musk said. “Because if you did it would destroy your case, that’s why.”

The attorney replied that some outreach had indeed been made to secure al-Rumayyan’s testimony, but the judge struck the entire exchange on relevance grounds.

Musk’s testimony kicked off Friday, when he took aim at short sellers, characterizing them as individuals who want to see the company fail. He said he uses his Twitter feed to disseminate company information and “memes” because he sees it as an effective means of communication with the public.

 

Musk, in a surprise move that caught many investors off guard, pursued and acquired Twitter last year at a price of $44 billion. He now serves as the company’s CEO.

The Securities and Exchange Commission sued Musk the month after his “Funding secured” tweet, and he and Tesla each agreed to pay $20 million fines to settle the matter, while Musk stepped aside as chairman of the Tesla board.

Musk and Tesla are each defendants in the federal shareholder lawsuit. Jurors are to decide on the liability of Musk and Tesla board members current and former who were controlling officers of the company at the time — as well as potential damages and how they should be apportioned.