SAN FRANCISCO – A nine-person jury was seated Tuesday to hear a trial that will determine whether Tesla CEO Elon Musk cheated investors by asserting in 2018 tweets that he had lined up financing to take the electric automaker private.
The five-hour process set the stage for opening statements to begin Wednesday in the case, which is expected to include testimony from Musk to explain his thinking while engaged in one of his favorite activities — tweeting on the Twitter service that he now owns.
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In the Tesla case, Musk’s tweets fueled a rally in the company's stock price that abruptly ended a week later after it became apparent that he did not have the funding for a buyout after all. Investors then sued him, saying that Tesla shares would not have swung so widely in value if he had not dangled the prospect of buying the company for $420 per share.
Musk's tweet also attracted the attention of securities regulators, who concluded that it was improper and that he was lying. In a settlement, they forced him to pay $40 million and required him to step down as Tesla chairman.
He has since contended that he entered the settlement under duress and maintains that he believed he had locked up financial backing for the buyout during meetings with representatives from Saudi Arabia’s Public Investment Fund.
Even while he has been making major changes at Twitter, Musk continues to serve as CEO at Tesla and derives most of his wealth and fame from the company.
The trial hinges on an Aug. 7, 2018, tweet in which Musk claimed he had lined up financing to pay for a $72 billion buyout of Tesla, which he then amplified with a follow-up statement that made a deal seem imminent.
But the buyout never materialized, and now Musk will have to explain his actions under oath in a federal court in San Francisco. The class-action lawsuit was filed on behalf of investors who owned Tesla stock for a 10-day period in August 2018.
The trial's outcome may turn on the jury’s interpretation of Musk’s motive for the tweets, which U.S. District Judge Edward Chen has already decided were false.
The judge dealt Musk another setback on Friday, when he rejected Musk’s bid to transfer the trial to a federal court in Texas, where Tesla moved its headquarters in 2021. Musk had argued that negative coverage of his Twitter purchase had poisoned the jury pool in the San Francisco Bay Area.
The challenge of finding jurors without strong feelings about Musk became evident during Tuesday’s painstaking selection process.
At one point, the judge flagged some prospective jurors who had expressed extreme misgivings or enthusiasm about Musk in pretrial questionnaires. Seven jurors were questioned individually, away from the rest of the jury pool, to reduce the chances of influencing the opinions of others in the courtroom.
Chen and lawyers for both the shareholders and Musk ended up grilling seven of those jurors, who variously described Musk as “arrogant,” “narcissistic,” “unpredictable,” “a little off his rocker,” “a mercenary” and “a genius.”
Musk’s leadership of Twitter — where he has gutted the staff and alienated users and advertisers — has proven unpopular among Tesla’s current stockholders, who are worried that he has been devoting less time to automaker at a time of intensifying competition.
Those concerns contributed to a 65% percent decline in Tesla’s stock last year that wiped out more than $700 billion in shareholder wealth — far more than the $14 billion swing in fortune that occurred between the company’s high and low stock prices from Aug. 7 to Aug. 17, 2018, the period covered in the lawsuit.
Tesla's stock has split twice since then, making that $420 price worth $28 on adjusted basis now. The shares closed last week at $122.40, down from the company's November 2021 split-adjusted peak of $414.50.
After Musk dropped the idea of a Tesla buyout, the company overcame a production problem, resulting in a rapid upturn in car sales that caused its stock to soar and made Musk the world’s richest person until he bought Twitter. Musk dropped from the top spot on the wealth list after a stock market backlash to his handling of Twitter.
The trial is likely to provide insights into Musk's management style, given that the witness list includes some of Tesla's current and former top executives and board members, including luminaries such as Oracle co-founder Larry Ellison and James Murdoch, the son of media mogul Rupert Murdoch.
The drama may shed light on Musk's relationship with his brother, Kimbal, who is also on the list of potential witnesses. The trial is expected to last until early February.