On April 15, 2020, Northern District of California Judge Edward Chen denied Tesla, Inc.’s (“Tesla”) motion to dismiss the consolidated class action lawsuit regarding Elon Musk’s tweet to take Tesla private for $420, finding that the tweet and several related statements were false and misleading. The Court found that the specific words and price identified in the tweet would lead a reasonable investor to believe that the tweet was something more than an opinion.
On August 7, 2018, Elon Musk tweeted out “Am considering taking Tesla private at $420. Funding secured.” Subsequently, Mr. Musk responded to multiple Twitter users’ individual tweets and posted his own tweets relating to the potential take private transaction. On August 24, 2018, Tesla published a blog post on its website entitled “Staying Public,” which explained Tesla’s reasons for deciding against the potential take private transaction. Shortly after, shareholders sued Mr. Musk, Tesla and Tesla’s directors (collectively, “Defendants”) alleging the related tweets and blog posts were nothing more than part of Mr. Musk’s attempt to ruin Tesla short sellers.
Defendants argued, among other things, that the tweet was not false and misleading and that Tesla did not make any statements because the posts came from Mr. Musk in his individual capacity as a potential bidder. The Court rejected both arguments.
In finding that the statements material misrepresentations, the Court found that Mr. Musk’s tweets were false. However, even if the tweets were opinions, they could still be materially misleading under the PSLRA if they conveyed facts. This is especially true if the opinion contains highly specific facts such as the specific $420 acquisition price.
With respect to Mr. Musk’s tweets being attributable to Tesla, the Court noted that Tesla has previously notified investors that it would use Mr. Musk’s Twitter account as a formal means of communication and that there was a custom and practice of using Mr. Musk’s Twitter to communicate to Tesla investors in the scope of his employment as CEO. Additionally, the consolidated complaint alleged that Tesla affirmatively adopted the statements. The Court found these arguments sufficient to overcome the motion to dismiss.
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