The Unites States District Court for the Northern District of California recently found that 10b-5 litigation regarding Elon Musk’s tweets could move forward after reviewing a motion to dismiss in In Re Tesla Inc. Securities Litigation.
Mr. Musk famously tweeted “Am considering taking Tesla private at $420. Funding secured.” Mr. Musk later responded to comments related to his tweet and also posted new tweets on the subject. Tesla’s Senior Director of Investor Relations received three e-mails inquiring about Mr. Musk’s tweets. One response given was “I can only say that the first Tweet clearly stated that ‘financing is secured.’ Yes, there is a firm offer.”
Tweet is Actionable
The Court rejected the defendants’ argument that the tweet was not false and misleading. Among other things, the Court found even if the entire tweet is deemed an opinion about the future funding, that would not insulate the tweet from scrutiny; a statement of opinion can be deemed misleading if it conveys facts, and this is especially so when the opinion contains highly specific facts—e.g., here, the specific price of $420. Because Mr. Musk, the CEO of Tesla, included the highly-specific price of $420 at which shares would be bought for the going-private transaction, and because his tweet followed with “funding secured,” a reasonable investor would have interpreted it as something more than a speculative amorphous opinion about future possibilities. Instead, it can be read as implying a more concrete state of affairs.
The Court also noted many investors and analysts did not read the tweet as a speculative statement of opinion. In addition Tesla’s own Senior Director of Investor Relations informed analysts that Mr. Musk’s tweet was correct, that there was a “firm offer” that was “as firm as it gets.”
Tesla’s Liability
Defendants argued that Mr. Musk’s statements were not actionable against Tesla as a matter of law because it did not have ultimate authority over the statement, its content, or how to communicate it. The Court rejected arguments that Janus precluded the action against Tesla. The Court noted the “issue here is whether liability attaches to a company for statements made by its own CEO. It is beyond dispute that a corporation can be liable for the fraud committed by its officers, so long as the officer commits it within the scope of his or her employment. Janus did not change that.”
The Court rejected Defendants argument that Mr. Musk spoke as a potential bidder and not as the CEO of Tesla. Tesla had previously filed a Form 8-K discussing channels through which it releases material news which stated “For additional information, please follow Elon Musk’s and Tesla’s Twitter accounts: twitter.com/elonmusk and twitter.com/TeslaMotors.”
The Court only ruled on Tesla’s motion to dismiss and has not found that any Defendants violated the law.