Question raised in multibillion-dollar lawsuit over Elon Musk Tesla tweet
Less than a month before a class action lawsuit over an infamous Elon Musk tweet goes to trial, a judge this week ordered expert witnesses to explain themselves, a possible sign a case that could cost Musk billions of dollars in damages may be in peril.
Musk is scheduled to go on trial Jan. 17 in a California federal court, where he would square off against Tesla shareholders who alleged his 2018 tweets about taking Tesla private cost them millions by causing volatility in the company's stock price.
"While some market participants expressed skepticism about Musk's tweets, many also accepted them as accurate and truthful as seen by the increase in Tesla's stock price towards the announced deal price of $420," wrote plaintiffs' attorney Adam Apton in a recent trial brief. "As a result of the turmoil in the prices for Tesla stock, options, and bonds caused by Musk and Tesla's statements, investors lost billions of dollars from August 7, 2018 to August 17, 2018."
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The defense said the plaintiffs relied on two experts – Michael Hartzmark and Steven Heston – whose model for calculating damages was flawed. The judge suggested in a recent order he agreed.
"There are substantial questions regarding Professor Heston's use of adjusted prices rather than the actual observed trading data for each individual stock option," Judge Edward Chen wrote.
Ultimately, the judge took no action because plaintiffs said they would rerun the calculations. It wasn't good enough for defense attorney Alex Spiro.
"Plaintiff's decision to change his approach to calculating options damages on the eve of trial — over one year after the deadline for expert disclosures — without sufficient information for Defendants to respond violates Federal Rule 26," Spiro wrote, referring to a section on expert testimony in the rules of civil procedure. "This should not be done on the fly, with hundreds of millions of dollars at stake."
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The judge this week ordered the plaintiffs to explain themselves, raising questions of whether the expert testimony will ultimately be allowed.
Musk's Aug. 7, 2018 tweet – "Am considering taking Tesla private at $420. Funding secured" – was false, and the court has already found Musk to have been deliberately reckless. It cost him $40 million Musk had to pay to the Securities and Exchange Commission.
Plaintiffs, however, are not allowed to bring up Musk's settlement with the SEC at trial because, the judge ruled, "the danger of unfair prejudice outweighs the probative value of the SEC settlements and complaints."
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