Shares of Tesla Inc. (NASDAQ: TSLA) rose 1.65% in pre trading session on Wednesday as investors lost $12 billion over the course of 10 days as a result of Elon Musk’s well-known tweet in 2018 that he had “funding secured” to take the firm private, according to a witness in a trial over the CEO’s culpability.
According to Musk’s attorneys, the trial, which is currently in its third week in San Francisco federal court, may result in billions of dollars in damages. Expert witnesses for the plaintiffs testified in front of the jury on Tuesday to demonstrate how Musk’s tweets from August 2018 put Tesla’s stock on a wild ride that damaged investors holding both long and short positions.
Michael Hartzmark of Forensic Economics, who testified about how he determined the effect of Musk’s tweets on the pricing of Tesla securities, provided the loss amount to the jury. All Tesla investors, a bigger group than those who are included in the class-action lawsuit, are included in the $12 billion estimate.
Hartzmark didn’t provide a specific figure for the amount of damages the plaintiffs are requesting, but he did tell the jury that Musk’s tweets caused “consequential injury” to investors and described his approach for estimating losses.
According to Hartzmark, emails sent at the time to the company’s investor relations office showed that the information Musk provided was “material,” or significant to reasonable investors.
According to Hartzmark, emails sent at the time to the company’s investor relations office showed that the information Musk provided was “material,” or significant to reasonable investors.
He explained to the jury how Tesla’s stock price rose in reaction to Musk’s original statement before falling rapidly as skepticism about the take-private proposal spread, in part because it became known that the US Securities and Exchange Commission was looking into the tweets.
Investors’ kryptonite, according to Hartzmark, is uncertainty. On the share price, “as this went drip, drip, drip over time it would have a negative influence.”
On cross-examination, Hartzmark grudgingly conceded under pressure from Musk’s attorney Andrew Rossman that the first section of Musk’s tweet—that he’s “considering” taking Tesla private—was accurate. The second claim Musk made in his tweet, that he had “financing secured,” was already found to be untrue by the court overseeing the case.
Rossman questioned Hartzmark about whether he separated the piece of the tweet that was found to be untrue from the effect it had on Tesla’s stock price.
It’s a package that’s interconnected, Hartzmark said. He said that he combined them since Musk had already expressed a desire to take Tesla private, and the stock price of Tesla had already reflected this before the CEO’s tweet. Musk’s claim that he had “financing secured,” as he put it, was the sole new information within the 10-day period encompassed by the case.
Steven Heston, a professor of finance at the University of Maryland, spoke before the jury earlier. Another expert witness for the investors, Heston presented his analysis on what occurred to Tesla options over the course of ten days beginning on August 7, 2018, when Musk tweeted about the planned proposal to take the business private. He observed an “unusual” pattern in the volatility of long-term option prices as well as an “abrupt change” in option prices across the time period.
