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Elon Musk defends tweets in San Francisco securities fraud trial

by SuperiorInvest

Alex Spiro, attorney for Elon Musk, center, leaves for court Tuesday, Jan. 17, 2023, in San Francisco, California, U.S.

Benjamin Fanjoy | Bloomberg | Getty Images

Tesla Chief Executive Officer Elon Musk appeared in federal court in San Francisco on Friday to defend the tweets he sent to his tens of millions of followers in August 2018.

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

Trading in Tesla stock first halted after the tweets, then the stock was highly volatile for several weeks. Musk he later said that he was in talks with Saudi Arabia’s sovereign wealth fund and was confident that funding would come at his proposed price. The deal never materialized.

The SEC charged Musk and Tesla with securities fraud after the tweets. Musk and Tesla paid $20 million in fines to the agency and entered into a revised settlement agreement that required Musk to temporarily relinquish his role as Tesla chairman.

His 2018 tweets also sparked a class-action lawsuit by Tesla investors. They claimed they were misled by Musk’s tweets and said relying on his statements to trade cost them a significant amount of money.

The shareholder trades in question took place in the 10 days before Musk appeared to concede that a take-private deal would not happen in 2018.

Musk said under oath Friday that it was difficult to link Tesla’s stock price to his tweets.

“There were many times when I thought if I tweeted something, the stock price would go down,” Musk said. “For example, I tweeted at one point that I think in my opinion the stock price is too high…and it went up, which is, you know, counterintuitive.”

Big increase in trading volume after he tweeted

It is rare for top executives of publicly traded companies to discuss their stock price, as any comment can affect price movements.

Daniel Taylor, director of the Wharton Forensics Analytics Lab and a professor at the University of Pennsylvania, analyzed every trade in Tesla stock that occurred on August 7, 2018, the day Musk tweeted. It counted the total trading volume every minute from the market open to Musk’s tweets about the buyback.

Taylor found that trading volume the minute Musk tweeted, at 12:48 ET that day, was over $350 million, and trading volume in Tesla stock the next minute was over $250 million. By comparison, the average volume five minutes before Musk tweeted was $32 million per minute. A minute before Musk tweeted, trading volume was $24 million.

“In general, 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 tenfold increase in trading volume the same minute Elon Musk tweeted.”

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

“I believe short selling should be illegal,” Musk said, calling short sellers the “bad guys on Wall Street” who “steal” from other investors. He said they also send stories to the media to “make the stock go down” and “do everything in their power to make the company die.”

Tesla was among the most shorted stocks in August 2018, when Musk made the announcement to take Tesla private. Tesla stock price rose about 10% during that day’s trading. Short sellers face huge losses when the company’s stock climbs higher.

Some of the plaintiffs in the ongoing lawsuit allege that Musk’s “secured funding” tweets were intended to put upward pressure on Tesla’s stock price, triggering a so-called “short squeeze.”

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

WATCHES: Musk testifies via tweets

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