What the heck happened in the Elon Musk trial? Is this another case of the rich guys always win? Not necessarily. So what was going on? How did Elon Musk “beat the wheel”?
In 2018, Elon Musk, perched from his favorite pulpit, sent out Twitter “tweets” that said the following: “Am considering taking Tesla private at $420. Funding secured.” Another pair of tweets followed: “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote” and then another stating that he doesn’t have a controlling vote now and “wouldn’t expect any shareholder to have one if we go private.”
Some shareholders, looking to make a quick buck, realized that going private would result in a significant premium over the current share price. In other words— buy some Tesla stock and when the company goes private, you will make lots of money. Maybe.
During the trial the judge ruled that parts of the tweets were false. Musk did not have funding secured. So "truth or falsity" was not an issue.
The most important questions then became twofold— did Elon Musk “purposely” or “recklessly”, make those false statements to defraud investors. And secondly, were those statements materially responsible for the spike in share prices?
I think the most likely explanation for the “not liable” verdict is that the shareholders were unable to prove that Musk’s purpose in publishing those tweets was to defraud investors.
So how do you prove fraudulent purpose?
Well, the recent Elizabeth Holmes trial is a good example. Ms. Holmes and her co-conspirators falsely claimed that her public company’s (Theranos) blood tests could detect a variety of ailments with just a few drops of blood. This was a tremendous improvement over current blood testing.
The jury in the criminal case concluded that Holmes’ purpose was to defraud investors for self-enrichment. Evidence included aspects of her personal lifestyle. Holme’s Theranos headquarters rented for a million dollars a month. She had two of everything. 2 security guards, 2 assistants, and 2 drivers. Her and her intimate partner bought a $135 million 30-hectare estate in Silicon Valley. They had a $ 5,000 + crash pad in San Francisco. $25,000 month for publicist…And on and on. All paid for by the investors in a blood test did that never worked.
This and a trove of other evidence made it clear that Holmes and her company was a grift. Heck, they even made a miniseries about it on Hulu.
Proving that Musk intended to defraud investors with those 2018 tweets was much more difficult.
A few jurors who went on the record offered the following: “they found Musk’s testimony that he believed he had lined up the money from Saudi Arabia’s Public Investment Fund without a written commitment to be credible. They also expressed doubt about whether Musk’s tweeting was the sole reason for the swings in Tesla’s stock price during a 10-day period in August 2018 covered in the case.”
Something the experts may overlooked has nothing to do with the justice system and everything to do with personal responsibility and group dynamics. Jurors may have looked at Musk and his tweets, and concluded that they were not definitive. That a potential shareholder had a responsibility to dig a little further. They may have seen the persons who claim to have been aggrieved (the plaintiffs) as unappealing, impulsive speculators. Persons who were looking for a "do-over" having ignored a basic obligation of due diligence.
Combined that with a juror with a strong personality, who promotes this theme and convinces the "fence sitters" to embrace that analysis. If there is no other strong personality in the room with a contrasting perspective, then the Type A wins. In the criminal law, we sometimes refer to this as "rough justice". Hardly perfect, but often the right result.
In any event, whether it was the lack of jury room idiosyncrasies, “intent to defraud”, lack of “materiality”—- or both, as some jurors explained, the bottom line is the experts were wrong. Musk rolled billion dollar dice. And won.