Tesla shareholders ask judge to order Musk to stop commenting on fraud case

Stockholders are suing Musk over 2018 tweets about taking Tesla private

Vishwam Sankaran
Monday 18 April 2022 07:55
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Twitter adopts 'poison pill' defence against Elon Musk takeover bid

Tesla shareholders suing the company’s chief Elon Musk over his 2018 tweets are asking a federal judge to order the billionaire to stop commenting on the fraud case.

Some shareholders of the electric vehicle company are launching a lawsuit over Mr Musk’s tweets dating back to 2018 about having “funding secured” to take Tesla private.

Lawyers of the stockholders say in court documents that the comments made by the billionaire violate a 2018 court settlement with US securities regulators in which Mr Musk and Tesla each agreed to pay fines of $20m.

The lawyers say Mr Musk’s 2018 tweet about having the money to take Tesla private at $420 per share was posted on the social media platform to manipulate Tesla stock price, costing shareholders money.

As part of the agreement with the US Securities and Exchange Commission (SEC), Mr Musk had said he would not “take any action or make or permit to be made any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis”.

But during an interview at a conference on Thursday, Mr Musk said he had the funding to take Tesla private in 2018, adding that he only settled since bankers told him they would stop providing capital if he didn’t, and Tesla would go bankrupt.

“I should say even in the originally...with Tesla back in the day...funding was actually secured. I want to be clear about that. In fact, this may be a good opportunity to clarify that,” Mr Musk said.

“If funding was indeed secured, I should say why I do not have respect for the SEC in that situation. And I do not blame everyone in the SEC but certainly the San Francisco office because the SEC knew funding was secured,” he said.

Mr Musk said on Thursday that the SEC pursued an active public investigation at the time Tesla was in a “precarious financial situation”.

“I was told by the banks that if I did not agree to settle with the SEC that they would cease providing working capital and Tesla would go bankrupt immediately,” Mr Musk said during the interview.

“So that’s like having a gun to your child’s head so I was forced to concede to the SEC....It makes it look like I lied when in fact I did not lie. I was forced to admit that I lied to save Tesla’s life,” he added.

Lawyers representing Tesla shareholders said on Friday that the billionaire is trying to influence potential jurors in the lawsuit.

“Musk’s comments risk confusing potential jurors with the false narrative that he did not knowingly make misrepresentations with his Aug. 7, 2018 tweets,” the lawyers wrote, according to Associated Press.

“His present statements on that issue, an unsubtle attempt to absolve himself in the court of public opinion, will only have a predjudicial influence on a jury,” they said.

The lawyers have asked judge Edward M Chen in San Francisco to make Mr Musk refrain from commenting further on the issue publicly until after the trial.

A lawyer representing Musk has reportedly said on Sunday that the plaintiffs’ lawyers are seeking a big payout.

“Nothing will ever change the truth, which is that Elon Musk was considering taking Tesla private and could have,” he wrote.

But the shareholders’ lawyers say the judge had already ruled that the Tesla chief’s 2018 tweets were false and misleading, and “that no reasonable juror could conclude otherwise”.

While the judge’s order, issued on 1 April, was not in the public court file as of Sunday, a lawyer for the Tesla shareholders says it was sealed as it has evidence that Mr Musk and Tesla claim to be confidential.

It is expected to stay sealed till the parties agree if anything should remain sealed, the shareholders’ lawyer Adam Apton said.

Alex Spiro, a lawyer representing Mr Musk, said the SEC is using its agreement with the Tesla chief to “near limitless resources” to curtail the billionaire’s free speech.

Court documents filed by the lawyer say Mr Musk signed the agreement with SEC when Tesla was a less mature company and the action by the securities regulator would have jeopardised the EV company’s financing.

Mr Musk’s interview and the court action have come just days after the Tesla chief made a controversial $43bn offer to buy all of Twitter and turn it private at about $54 per share.

Twitter’s board announced on Friday that it is taking a “poison pill” strategy to make it prohibitively expensive for Mr Musk to buy the shares.

This measure would give Twitter’s shareholders the opportunity to buy the company’s stock at a discounted price if Mr Musk increases his holdings to more than 15 per cent of the company – a plan designed to deliberately water down the stake of the world’s richest person.

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