Elon Musk defends the tweets in the San Francisco securities fraud trial

Alex Spiro, Elon Musk’s lawyer, center, leaves court in San Francisco, California, US, on Tuesday, January 17, 2023.

Benjamin Fanjoy | bloomberg | Getty Images

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

The tweets said he had secured “secured financing” to take his electric car company for $420 per share, and that such a deal had “confirmed” investor support.

Trading in Tesla shares initially stopped after the tweets, and then the shares were very volatile for weeks. Musk later said he had discussions with Saudi Arabia’s sovereign wealth fund and felt confident the financing would come at the price he proposed. Deal did not materialize.

The SEC charged Musk and Tesla with civil securities fraud after the tweets. Musk and Tesla each paid the agency a $20 million fine, and entered into a revised settlement agreement that requires Musk to temporarily relinquish his role as chairman of Tesla’s board of directors.

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 deals cost them large sums of money.

The involved shareholders deliberated over a 10-day period before Musk appeared to admit that the private takeover would not happen in 2018.

Musk said under oath on Friday that it was difficult to link 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, at one point, I tweeted at one point that I thought, in my opinion, the stock price was way too high…and it went even higher, which, you know, doesn’t make sense.”

Significant increase in trading volume after he tweeted

It is rare for senior executives of publicly traded companies to discuss their stock prices because any comment can affect price movements.

Daniel Taylor, director of the Wharton Forensic Lab and professor at the University of Pennsylvania, analyzed every Tesla stock transaction that took place on August 7, 2018, the day Musk tweeted. It calculated total trading volume every minute from the time the market opened until the time Musk tweeted about a long trade.

Taylor found that the trading volume the moment Musk tweeted, at 12:48 p.m. ET that day, was more than $350 million, and the next minute Tesla shares had more than $250 million in trading volume. By comparison, the average volume five minutes before Musk tweeted was $32 million per minute. In the minute before Musk’s tweet, the turnover was $24 million.

“It is 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 the 10x increase in trading volume the exact minute Elon Musk tweeted.”

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

“I think short selling should be illegal,” Musk said, referring to short sellers as “bad people on Wall Street” who “steal” from other investors. He said they also plant stories in the media in order to “make the stock go down” and “will do anything they can to make the company die.”

Tesla was among the most shorted stocks in August 2018, when Musk made remarks about taking Tesla private. Tesla’s share price rose about 10% during that day’s trading. Short sellers face huge losses when the shares of a particular company go up.

Some plaintiffs in the ongoing trial allege that Musk’s “guaranteed” tweets were intended to increase price pressure on Tesla shares resulting in the so-called “short squeeze.”

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

Watch: Musk vouches for the tweets

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