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Elon Musk, Funding Secured, SEC, Summary Judgement, Jury found not liable

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This post is regarding the legal charges against Elon making tweets about taking Tesla private, and how they concluded.

After seeing some very confused yet confident dialogue about this topic, I carefully searched for the below information on this forum and couldn’t find it posted anywhere, all I found was surface level discussion, nothing with more depth or links to court transcripts.

Even on news sites this information was very difficult to find, since sites typically don’t list sources and often just repeat what other news organizations wrote.

This started in 2018 which was a very difficult time for Tesla, during the Model 3 production ramp which Elon named “Production hell”. The company had not been in great financial shape.

Tesla has long had a large number of short sellers betting against the company, sometimes being the most highly shorted stock on Wall St. It was a common belief on this forum that a short seller campaign was underway to drive negative stories about Tesla into the media and paint Tesla in a bad light, in order to decrease the stock price and make a profit on their short positions. This would hurt Tesla in multiple ways, both directly in their reputation and also indirectly with making it more difficult to raise capital.

During this time, Elon had talks with Saudi Pubic Investment Fund, who had been interested in taking Tesla private.

Elon felt it would be better if Tesla were private, like SpaceX, he made multiple tweets, including;

“Am considering taking Tesla private at $420. Funding secured.”
“Investor support is confirmed. Only reason why this is not certain is that it’s
contingent on a shareholder vote.”

Lawsuit 1 - SEC Charges
The SEC charged Elon with securities fraud, claiming series of criteria were met for Elon to be liable, including that the tweets were materially false, he knew they were false or behaved recklessly, that investors reacted to the tweets with investments and that investors were harmed.


Elon wanted to fight the charges and was sure he would win. However he was strongly advised against it, on the grounds that a long SEC court case would likely make raising capital extremely difficult during Tesla’s factory Production Hell and could bankrupt the company, even if Elon eventually won the case against the SEC, it would greatly harm Tesla. There has also been speculation of bias or corruption in the SEC.

Elon settled the case with the SEC without going to trial, agreeing to pay $20 million and step down as chairperson, without any admission or denial of the allegations. Tesla also paid $20 million.

SEC.gov | Elon Musk Settles SEC Fraud Charges; Tesla Charged With and Resolves Securities Law Charge

Elon was not found not liable on these charges. Many people falsely took the settlement to mean he was found “guilty”, this wasn’t the case, and later Elon has said he adamantly believes he would have defeated the charges had it gone to trial, and that he felt coerced into settling.

Lawsuit 2 - Civil investor Charges
An investor lawsuit for fraud (Rule 10b-5 claim.) was also brought against Elon and Tesla.
This was a civil case that was separate and different from the SEC charges.
Elon and Tesla took this to court and it was a long drawn out process, finishing in 2023.

Here is a link to the trial documents, there are 704 documents in total, with many thousands of pages in total.

In order to win against Elon/Tesla, the plaintiff would have to prove ALL the following;

1. Misrepresentation or False Statement: The investors needed to demonstrate that Elon's tweets were false or misleading.
2. Materiality: The misleading or false statements had to be material, meaning they were significant enough to influence the decisions of investors.
3. Reliance on Statements: The investors had to prove that they relied on Elon’s statements when they made their investment decisions. This means showing a connection between Elon’s statements and the investors’ actions.
4. Losses or Damages: The investors needed to demonstrate that they suffered financial losses or damages as a result of relying on the false or misleading statements.
5. Scienter (Intent or Recklessness): This is often the most challenging part to prove. The investors had to demonstrate that Elon either intended to deceive, manipulate, or defraud, or that he acted recklessly regarding the truth of his statements.
6. Causation: Finally, there had to be a causal link between Elon’s statements and the investors’ losses. This means proving that the losses were a direct result of the false or misleading statements.

All 6 would have to be met for Elon to be liable.

During civil trials, if certain conditions are met, the judge has the option to order that a “Summary Judgement” be granted on some or all items. This means the judge can sometimes make some or all decisions, rather than it going to a jury.

During the trial, the judge made a summary judgement that the tweets by Elon were both false and reckless. However he sent the other items to jury trial, including whether the tweets were materially false (eg contained significant financially relevant information).

This is the transcript where the judge heard arguments from opposing lawyers regarding the summary judgement. It is quite interesting. Recommend reading.

Here is the judges summary orders after having reviewed the case and testimonies. Also interesting read, it is comprehensive with a wide range of evidence.

Here are conclusion quotes:
“Based on the evidence of record, the Court finds that no reasonable jury could find the statement “Funding secured” accurate and not misleading.”

“The Court holds that, based on the evidence presented, there is no genuine dispute that the first three representations at issue were false and that Mr. Musk recklessly made those representations. To that extent, the motion is granted. In all other respects, the motion for partial summary judgment is denied”
- District Judge Edward M Chen

This means that the judge found Elon’s tweets had met 2 of the necessary 6 criteria for fraud, and that the judge decided the case for this is so strong that a reasonable jury could not come to any other conclusion.

This meant the judge evaluated that a reasonable jury could decide either way on some or all of the remaining 4 criteria.

The jury later unanimously decided that the burden of proof for some or all of the remaining 4 criteria which the judge had sent to the jury, were not met.

This means that the tweets by Elon were determined by the court system to be false, that funding was not secured and Elon’s tweet’s were reckless, these 2 alone do not create liability without the other 4 criteria, therefore that the burden of proof for fraud charges was not met, therefore Elon was not liable.
This means that
- the tweets by Elon were determined by the court system to be false,​
- that funding was not secured and Elon’s tweet’s were reckless,​
these 2 alone do not create liability without the other 4 criteria,​
therefore that the burden of proof for fraud charges was not met,
therefore Elon was not liable.
This means also that... Elon Musk has good lawyers !!!

Spiro, in discussing closing arguments during the online course, said that rather than telling jurors that
it's their duty to convict or reach a certain decision, it can be more effective to aim for the “Eureka effect”
by using questions to poke holes in the other side's case.
Asking jurors to consider things like “If this happened, why did it happen?” can be a way to lead them
to the conclusion you're after, Spiro said, allowing them to "reach the answer themselves."
“If you do a good job of it,” he continued, “those questions will become doubts, and I submit it will help you win your case.”
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