Keeping track of the actual car parts of path-breaking electric carmaker Tesla is difficult. But add in Elon Musk’s personality, love life, fondness for Twitter, tussles with the US Securities and Exchange Commission, and the occasional appearance on TMZ, and being a EV enthusiast has never been so odd—or taxing.
This week, it got odder. The judge overseeing a class action lawsuit filed in a California federal court against Tesla and Musk by a large group of Tesla shareholders said that yes, sure, the lawyers for the plaintiffs sure can subpoena the art pop musician Grimes and the rapper Azealia Banks. The shareholders allege that Musk and Tesla misrepresented facts about the publicly traded company. For Tesla, this means some significant amount money may hang on its CEO’s interactions with a handful of celebrities.
What? Why? Help? Let’s break down all the recent happenings.
This class action investor lawsuit started with one measly tweet, one Musk tapped out while behind the wheel of his Model S, he later told The New York Times. “Am considering taking Tesla private at $420,” he wrote on August 7. “Funding secured.”
It turns out that last part was not true. Though Musk had conversations with Saudi investors about taking the company private, the funding had not been finalized. (Seventeen days after that tweet, Tesla announced it would stay public after all.) If Musk were just some dude, using Twitter to distort the truth would be, well, normal. But Musk is the head of a public company, which means his public statements about the company, even via Twitter, can be construed as communications to investors.
In September, the SEC sued. By the end of the month—after backing out of the deal, then going back in—Tesla settled the case. Musk stepped down as chairman of Tesla for at least three years. He and Tesla each paid a $20 million fine. Tesla appointed two new independent members to its board and a new chairperson, and the company is now supposed to oversee Musk’s communications with investors, no matter how they’re sent.
The deal did not, however, appear to mollify the multiple Tesla investors who filed class action lawsuits after the August tweet. (Those suits have since been consolidated into one class action suit, overseen by Judge Edward Chen in a California federal court.) These investors claim Musk knew that the funding to take the company private wasn’t secure, and that his statement (and subsequent ones made by the company) disrupted “the market in Tesla securities such as stock and stock options…causing billions of dollars of damage to Tesla investors,” according to a complaint filed this week.
The suit alleges that Musk’s “false” tweets were motivated, in part, by his desire to punish those with short positions on Tesla stock, and to make them lose money. (Indeed, the price of Tesla stock shot up after Musk’s initial “funding secured” tweet, hurting shorts financially.) Tesla declined to comment on the ongoing lawsuit. The plaintiffs’ lawyers did not respond to requests for an interview.
The Azealia Banks Connection
If you’re still hanging on, tighten your grip. Here’s where it gets weird. In mid-August, as confusion and rumors about Musk’s “taking Tesla private” tweet swirled, rapper Azealia Banks took to Instagram to allege that she had been in the Tesla CEO’s house during the fallout. Banks alleged in a Instagram Story post that Musk had panicked when he realized he might not have the funding to take his company private, and might get in deep doo with the SEC. (Banks said she had played the unwilling witness to this drama while—wait for it—trapped inside the billionaire’s house as she waited for his girlfriend, the musician Grimes, to record music with her. (Banks also intimated on a quickly deleted Instagram Story that the couple might have really invited her over to have…a threesome? I’m tired.) In a series of Instagram stories, Banks likened the incident to an “episode of Get Out.”
Musk, meanwhile, told Gizmodo that he has never met Banks in his life. According to the settlement posted by the SEC, he did tell federal investigators that he had tweeted that Tesla would go public at $420 a share because he thought the reference would amuse Grimes.
That was 2018. The class action lawsuit between Musk, Tesla, and Tesla shareholders has dragged into 2019. According to documents filed to the California federal court, the lawyers for the investors suing Musk believe Grimes (whose legal name is Claire Elise Boucher) and Banks have important information about Musk’s behavior in early August. Grimes, they allege, may have been the last person to speak with Musk before he sent the fateful tweet, and may have discussed the tweet with the CEO after he sent it. “If, as Ms. Banks claims, Musk was actively attempting to find investors to ‘cover’ for the tweet, then Ms. Boucher likely observed this behavior or overheard conversations between Musk and between Musk and potential investors,” according to the shareholders’ legal filings. Banks, meanwhile, “purportedly observed Musk attempting to ‘cover’ for the tweet after it was sent.”
Now, the investors’ legal team has permission to demand that those two women, plus journalists at Business Insider, Gizmodo, and The New York Times who have spoken to the main players about the events, preserve all documents and communications related to the August incident.
Despite this win for the shareholders, it may be months before the case is resolved. The judge overseeing it has scheduled a status conference, or formal “check-in” for the parties involved, for June. And legal experts say this case is far from a slam dunk. Plaintiffs will have to prove that Musk meant to manipulate Tesla’s stock price, uncovering a paper (or text or email) trail, or weaving together enough evidence to convince a judge or jury of the CEO’s thought process as he tweeted, John Coffee, Jr., the director of the Center on Corporate Governance at Columbia Law School, told WIRED last summer.
Still, a bad outcome for Musk could prove very pricey for Tesla and its CEO, given the lawsuit alleges shareholders “sustained millions of dollars in losses” because of their actions. Meanwhile, the automaker has announced layoffs and other cutbacks. The players have plenty of incentive to settle, even if Musk is known for scrapping.
Whatever the outcome, there’s at least one solid lesson here: Never tweet.
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