Case Name: Tesla Securities Litigation
Verdict Fund: TBD
Claim Filing Deadline: Let's hope!
Class Period: All individuals and entities who purchased or sold Tesla stock, options, and other securities from 12:48 p.m. EDT on August 7, 2018 to August 17, 2018 and were damaged thereby
Last Tuesday, one of the rarest phenomena in the world of securities litigation began in New York: an actual trial.
Investors are suing Elon "The Former Richest Man in the World" Musk over an allegedly reckless Tweet that went, "Am considering taking Tesla private at $420. Funding secured." This tweet happened at 12:48:16 PM EDT on August 7, 2018, hence they very precise start to the class period.
According to the plaintiff's consolidated complaint, "The “short interest” at that point in time was 33.8 million, meaning that almost 20% of Tesla’s shareholders were betting that Tesla’s stock would decline in value. Musk’s tweet, which caused the price of Tesla’s shares to increase 11% over the course of the day, resulted in a mark-to-market loss of $1.1 billion for these short investors, many of whom had to purchase Tesla shares at inflated prices to cover their positions. Option traders also suffered significant losses."
Immediately investors and regulators debated whether the $420 price was a serious claim-- or a crude reference to 4:20 PM, the time in the afternoon when people-who-do-that-sort-of-thing smoke pot. The SEC's Enforcement Division quickly decided it was a reckless comment. By September 27, 2018 they had filed charges. Two days later the SEC announced a settlement requiring both Tesla and Musk to pay $20 million each, resulting in the $40 million Tesla Fair Fund. (The deadline for which was September 17, 2022.)
Typically, if a corporation cannot dismiss a securities suit, it will settle long before going to trial since the risk of paying 100% damages is too much to stomach. (According to Kevin LaCroix of DandODiary.com, only 26 of the *thousands* of securities litigations since 1996 have gone to trial.) Elon Musk and Tesla already settled an SEC case over the same allegations before the jury in this current trial-- so the risks here are high. Musk, of course, is anything but typical and anything but risk adverse.
Despite the previous SEC settlement, which Musk now claims he agreed to under duress, he insists that $420 per share was a serious offer representing a 20% premium on the share price, though he conceded on the witness stand that there is "some karma" with the number. (He also averred that "I should question if that is good or bad karma at this point.") The plaintiffs also secured a victory last year when the judge, Edward M. Chen, ruled that the tweet was a false statement. At this point, Tesla's and Musk's hope is that the jury decides other factors, statements, or actions contributed to investor losses, and that the Tweet was immaterial.
Chicago Clearing will, of course, be tracking this most interesting case covering the most eccentric CEO. If you have questions about this or any of the hundreds of active securities litigations and settlements, please give us a call at 312-204-6970.
Kevin LaCroix on the rarity of securities litigation trials: