Elon Musk defends tweets in San Francisco securities fraud trial

Alex Spiro, attorney for Elon Musk, center, exits court in San Francisco, California, U.S., on Tuesday 17th 17th, 2023.

Benjamin Fanjoy | Bloomberg | Getty Images

Tesla CEO Elon Musk appeared in federal court in San Francisco on Friday to defend tweets he posted to his tens of millions of followers in August 2018.

The tweets said he had “secured funding” to take his electric vehicle company private at $420 per share and “confirmed investor support” for such a deal.

Tesla stock trading initially came to a standstill after the tweets, then the shares were highly volatile for weeks. Musk later said he had held talks with Saudi Arabia’s sovereign wealth fund and was confident the funding would come at his proposed price. A deal never materialized.

The SEC charged Musk and Tesla with civil securities fraud following the tweets. Musk and Tesla each paid the agency $20 million in fines and reached a revised settlement agreement that required Musk to temporarily step down from his role as Tesla’s CEO.

His 2018 tweets also sparked a shareholder class action lawsuit from Tesla investors. They claimed that Musk’s tweets misled them and said that relying on his statements to make trades cost them significant amounts of money.

The shareholder trades in question occurred over a 10-day period before Musk appeared to concede that a take-private deal would not happen in 2018.

Musk said under oath Friday that it was difficult to connect Tesla’s stock price to his tweets.

“There have been many instances where I thought if I tweeted something, the stock price would go down,” Musk said. “For example, I once tweeted that I think the stock price is too high in my opinion… and it’s gone up, which wasn’t intuitive.”

A big spike in trading volume after he tweeted

It is rare for top executives of publicly traded companies to speak about their stock price, as any comment can affect price movements.

Daniel Taylor, director of the Wharton Forensics Analytics Lab and professor at the University of Pennsylvania, analyzed every trade in Tesla shares that occurred on February 7th, 2018, the day Musk tweeted. He calculated the total trading volume every minute from the time the market opened to the time Musk tweeted about a buyout.

Taylor noted that the trading volume the minute Musk tweeted at 12:48 p.m. ET that day was over $350 million, and the next minute trading volume for Tesla shares was over $250 million . In comparison, the average volume five minutes before Musk tweeted was $32 million per minute. In the minute before Musk tweeted, the trading volume was $24 million.

“It’s generally true that correlation is not causation,” Taylor told CNBC on Friday after Musk’s first day on the witness stand. “However, I am not aware of any alternative explanation for a 10x increase in trading volume in the same minute that Elon Musk tweeted.”

Musk also testified on Friday about his low opinion of short sellers.

“I think short selling should be made illegal,” Musk said, describing short sellers as “bad guys on Wall Street” who “steal” other investors. He said they also plant stories in the media to “crash the stock” and would “do everything in their power to let a company die.”

Tesla was among the top-performing stocks in August 2018 when Musk made the statement about Tesla’s privatization. Tesla’s stock price rose about 10% during trading that day. Short sellers face huge losses if a particular company’s stock moves higher.

Some of the plaintiffs in the ongoing lawsuit allege that Musk’s “funding secured” tweets were aimed at putting upward pressure on Tesla stock, resulting in a so-called “short squeeze.”

Musk’s testimony is not complete and the court plans to hear him again on Monday.

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Tesla CEO Elon Musk testifies about 2018

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