Elon Musk Fraud Trial Over 2018 Tesla Tweets Underway Transcript

Be careful what you post online, it might cost you. In 2018, Tesla CEO, Elon Musk, tweeted he had the funding secured to make his electric car company private at more than $400 a share. As it turns out, he didn’t, and now he’s on trial for fraud in San Francisco. The case stems from a class action lawsuit filed by Tesla investors, who claim his tweets cost them billions of dollars. A judge already determined last year that Musk tweets were false. Now it’s up to the jury to decide if his statements had an impact on the price of Tesla’s shares, and if Musk made the comments knowing they were not true. To help me understand all of this, I am joined by Jill Fisch. She’s a professor of business law at the University of Pennsylvania. So Professor Fisch, first, what does the jury have to determine here?

Well, John, you’re absolutely right. Musk has an uphill battle because the judge already determined both that these statements were false and that Musk acted recklessly when he made the statements. So the remaining issues for the jury are two. Number one, materiality. And materiality is basically, how important were Musk’s tweets to a reasonable investor? That’s a fact question. And in its earlier ruling, judge Chen explicitly said he wasn’t deciding that issue. And among other things, we may expect to hear from expert witnesses about the extent to which Musk’s tweets or other information contributed to Tesla’s stock price movements. The second issue is loss causation. When there’s a private lawsuit like a class action, the law requires the plaintiff to show that they suffered an actual economic loss. So that’s a question the jury’s going to have to decide.

And on this question of whether Elon Musk knew what he was saying was not true, is that at issue in a class action lawsuit or is that just in a criminal case? And also, if you’re at the top of a company, don’t you have a duty to not go off saying things that might not be true? I mean, in other words, isn’t there a fiduciary responsibility to check your facts?

So that’s a great question. And yes, we expect corporate executives not only to tell the truth, but to have a factual basis for their statements. Corporate executives know that their statements are going to influence the investing public. And so, there’s an implied representation, “Yes. I did my homework.”

And what could Musk’s defense team argue in protecting him?

So what I understand is that Musk is still arguing that the statements were in fact true, that he did have funding, that his negotiations with the Saudi Arabian sovereign wealth fund were a factual basis for him saying that he had funding secured.

And what, if anything, do you think… I guess it’ll depend on the ruling of course, but if there is a ruling here, does it tell us anything about the limits of what you can post? Certainly in the political world, a lot of people post things and then they whittle out of it by saying, “Oh. I was just kidding.” Is there anything about this case that might either tighten up the lines about what can be said online, or might they not loosen them and see an erosion of norms the way we’ve seen them in other areas?

So that’s a great question, and I think we’re still struggling with the limits of what you can post on social media. So you said earlier, corporate executives are different, and I think that’s absolutely true, but I think we’ve seen that even sort of ordinary people have the potential to influence stock prices on social media. If you think about Keith Gill, Roaring Kitty and the GameStop frenzy last year, same kind of thing. Keith Gill obviously wasn’t an executive at GameStop. So there is the potential. We’ve seen this with celebrities, with public figures who aren’t necessarily executives. And Congress and the SEC are still in the process of sorting this out.

And if the court rules in favor of the investors, could this get pricey? How will that get determined in terms of damages?

So in terms of damages, the court’s going to have to look… It’s a little bit complicated because there were several different statements that Musk made during a short period of time. The statements were, in some sense, contradictory to each other, and there were investors trading in and out of the stock during what was essentially a 10-day period. So not every investor is going to be in exactly the same position, and that’s going to go to the calculation of damages.

Tough to untangle the spaghetti from the sauce. Professor Jill Fisch, thank you so much for being with us.

My pleasure.