(Feb 1): Tesla Inc investors lost US$12 billion over 10 days as a result of Elon Musk’s famous tweet in 2018 that he had “funding secured” to take the company private, a witness testified at a trial over the CEO’s liability.
Lawyers for Musk have said there are billions of dollars in damages at stake in the trial, now in its third week in San Francisco federal court, but until Tuesday (Jan 31) an exact figure had been the subject of speculation.
The trial revolves around Musk’s controversial August 2018 Twitter posts that he was considering taking the electric-car maker private. Investors have called numerous witnesses, including a top Goldman Sachs Group Inc executive, to make their case that the tweets triggered dramatic fluctuations in Tesla’s share price, causing their trading losses and the damages delineated at trial on Tuesday.
The loss figure was presented to the jury on Tuesday by Michael Hartzmark, an expert witness from Forensic Economics, who testified about how he measured the impact of Musk’s tweets on the prices of Tesla securities.
Hartzmark didn’t address how much the plaintiffs are seeking in damages, but he told the jury that Musk’s tweets had “consequential harm” to investors.
“The tweets caused losses to investors” over the 10-day period, he said. He walked the jury through how the Tesla share price spiked in response to the initial announcement from Musk — and then declined sharply as doubts grew about the take-private plan.
“Uncertainty is the kryptonite of investors,” Hartzmark said. “As this went drip, drip, drip over time it would have a negative impact” on the share price.
Earlier the jurors heard from Steven Heston, a professor of finance at the University of Maryland. Another expert witness for the investors, Heston explained Tesla options to the jurors, telling them the company has one of the most active markets for puts and calls of any stock. He said that while individual investors buy options, they’re used mostly by institutional investors — mutual and pension funds and insurance companies.
Heston shared his research for what happened to Tesla options from Aug 7, 2018, when Musk posted his tweets, over 10 days, as the proposed plan to take the company private fell apart. He noted an “abrupt movement” in options prices over the period and an “unprecedented” pattern in the volatility of long-term options prices.
Heston showed the jurors how a short-term call option expiring one month after Musk’s tweet, at a strike price of US$420 – the share price at which Musk said Tesla would go private – rose almost US$2. A long-term call at the same stock price but expiring Jan. 17, 2020, lost US$22.40.
Musk has testified that the “funding secured” tweet was “absolutely truthful”, touting what he described as an “unequivocal” commitment by Saudi Arabia’s sovereign wealth fund to back the go-private plan with billions of dollars — even though he had nothing in writing.
Investors argue Musk’s tweets amounted to a violation of securities laws because his bankers had been barely consulted and hadn’t formally signed on to his take-private plan. Investment banking witnesses told jurors last week that even a week after the tweet, they were still working to figure out how the deal would be structured, including who would pay for it.
In re Tesla Inc Securities Litigation, 18-cv-04865, US District Court, Northern District of California (San Francisco).