Elon Musk defends tweets in San Francisco securities fraud lawsuit

Elon Musk defends tweets in San Francisco securities fraud lawsuit
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Elon Musk’s attorney Alex Spiro, center, leaves court in San Francisco, California, U.S., Tuesday. 17, 2023.

Benjamin Fanjoy | Bloomberg | Getty Images

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

The tweets said it had “secured financing” to take the electric car company private for $420 per share and “confirmed” “investor support” for such a deal.

Tesla’s stock trading was initially suspended after the tweets, and then shares were highly volatile for weeks. Musk then he said he said he was in discussions with Saudi Arabia’s sovereign wealth fund and was confident the financing would be obtained at the price it offered. The deal never materialized.

The SEC charged Musk and Tesla with civil securities fraud after the tweets. Musk and Tesla each paid a $20 million fine to the agency and entered into a revised settlement agreement that required Musk to temporarily step down as chairman of the board at Tesla.

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

The stock auctions in question took place over a 10-day period before Musk admitted that a private deal would not happen in 2018.

Musk vowed on Friday that it was difficult to link Tesla’s stock price to his tweets.

“I thought if I tweeted a lot, the stock price would go down,” Musk said. “For example, at one point I tweeted that I think the stock price is too high … and it went higher, which was, you know, counterintuitive.”

A huge increase in trading volume after tweeting

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

Daniel Taylor, director of the Wharton Forensic Analytics Lab and a professor at the University of Pennsylvania, analyzed every trade in Tesla stock that took place in August. 7, 2018, the day Musk tweeted. I calculated the total trading volume every minute from the time the market opened to when Musk tweeted about the purchase.

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

“It’s generally true that correlation is not causation,” Taylor told CNBC on Friday, after Musk’s first day on the witness stand. “However, I am unaware of any alternative explanation for the 10x increase in trading volume per minute of Elon Musk’s tweets.”

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

“I believe short selling should be made illegal,” Musk said, calling short sellers “evil people on Wall Street” who “steal” from other investors. He also said they planted stories in the media to “make the stock go down” and would “do whatever it takes to make a company die.”

Tesla was among the most shorted stocks in August 2018 when Musk announced plans to take Tesla private. Tesla stock price increased by about 10% during trading that day. When a particular company’s stock goes up, short sellers face huge losses.

In the ongoing lawsuit, some plaintiffs allege that Musk’s “funded” tweets were intended to put price pressure on Tesla’s stock, a so-called “short squeeze.”

Musk’s testimony has not yet been completed and the court is scheduled to hear it again on Monday.

WATCH: Musk testified on tweets

Tesla CEO Elon Musk to testify about 'funded' tweets in 2018

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