Musk bets big on beating shareholders at 'funding secured' trial
Send a link to a friend
[January 13, 2023] By
Jody Godoy and Tom Hals
NEW YORK (Reuters) - Elon Musk is set to become the rare CEO to fight a
securities class action at trial next week, where he will defend his
2018 tweet announcing he had "funding secured" to take Tesla Inc
private.
Musk is essentially doubling down after suffering an initial setback
last year, when the judge in San Francisco federal court ruled that his
tweet was "false" and "reckless." As a result, the jury will need to
determine only if the statements impacted Tesla's share prices, if Musk
acted knowingly, and the amount of any damages.
"Everything is lined up for a plaintiffs' win here," said Minor Myers,
who teaches corporate law at the University of Connecticut. Judge Edward
Chen's ruling in May means that shareholders are "starting with runners
on base," he said.
An attorney for Musk, as well as Tesla and several directors who are
also defendants, declined to comment. They have denied that Musk's
statements violated the law. They will argue at trial that the stock
price rose because Musk revealed that he was considering at the time
that he might take Tesla private. His conversations with Saudi investors
led him to believe funding for the deal was secured.
Eduard Korsinsky, an attorney who represents the class of investors who
alleged billions of dollars in losses, called the case "exceptionally
strong."
The trial is a chance for Musk to take the stand to vindicate himself by
convincing a jury that he was truthful when he tweeted on Aug. 7, 2018,
"Am considering taking Tesla private at $420. Funding secured." In
another tweet the same day, he wrote, "Investor support is confirmed."
The company's shares shot higher and then fell again after Aug. 17,
2018, when the New York Times reported that funding for the take-private
bid was "far from secure."
Tesla and Musk settled with the Securities and Exchange Commission in
2018, denying wrongdoing. Musk surrendered the Tesla chairman position
and agreed to let a company lawyer vet some of his tweets. In a separate
case, he has asked an appeals court in New York to end Tesla's oversight
of his speech online.
A RARE BET
Most chief executives avoid the risks of testifying under oath, but Musk
has taken several cases to trial and subjected himself to cross
examination, although none were brought under federal securities law.
[to top of second column] |
Elon Musk arrives at the In America: An
Anthology of Fashion themed Met Gala at the Metropolitan Museum of
Art in New York City, New York, U.S., May 2, 2022. REUTERS/Andrew
Kelly/File Photo
He beat a libel case in 2019 before a California jury over claims he
defamed a cave explorer he referred to as "pedo guy" in a tweet. He
won a bench trial in Delaware's Court of Chancery last year over
claims by Tesla shareholders that he allegedly coerced the Tesla
board into buying SolarCity, a rooftop solar panel maker. Tesla
shareholders had sought billions in damages and they have appealed.
Also last year he spent months fighting an ultimately losing battle
to wriggle out of his deal to buy Twitter and he defended his $56
billion Tesla pay in a bench trial. Both of those were in the same
Delaware court and a ruling is expected later this year on his pay
package.
Next week's trial is scheduled to last around three weeks. The
parties could still, however, settle their differences at any time,
even mid-trial or on the courthouse steps.
It would be unusual if the case proceeded all the way to a verdict.
Hundreds of U.S. securities class actions have been filed every year
since the current laws governing the cases went into effect in 1996,
but only 15 resulted in trial verdicts, according to the Wolf Popper
law firm.
Around half are dismissed for failing to comply with securities law
and most of the rest are settled.
"These kind of cases rarely go all the way to trial. In part because
you are putting all of the outcome determination in the hands of a
bunch of strangers," said Kevin LaCroix, a veteran directors and
officers insurance attorney who blogs on executive liability.
If shareholders ultimately prevail and win damages, it will likely
be years before they collect due to the appeals process.
For example, shareholders of Household International, a lender now
owned by HSBC, won at trial in 2009 but appeals dragged on until it
settled in 2016 for $1.575 billion, one of the biggest wins for
shareholders in a securities case.
"Even if the plaintiffs win, they are looking at appeals that could
last a very long time," and potentially go before the U.S. Supreme
Court, said Tulane Law professor Ann Lipton.
(Reporting by Jody Godoy in New York and Tom Hals in Wilmington,
Del.; Editing by Amy Stevens and Matthew Lewis)
[© 2023 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |