Alex Spiro, attorney for Elon Musk, center, leaves court in San Francisco, California, U.S., Tuesday, Jan. 1, 2019. 17, 2023.
Benjamin Fanjoie | Bloomberg | Getty Images
You’re here CEO Elon Musk appeared in federal court in San Francisco on Friday to defend tweets he posted to his tens of millions of followers in August 2018.
The tweets said he had “secure funding” to take his electric vehicle company private for $420 per share, and that “investor support” for such a deal was “confirmed.”
Trading in Tesla shares initially stalled after the tweets, then shares were highly volatile for weeks. Musk later said he had discussions with Saudi Arabia’s sovereign wealth fund and was confident the funding would come in at the proposed price. An agreement never materialized.
The SEC charged Musk and Tesla with civil securities fraud after the tweets. Musk and Tesla each paid $20 million in fines to the agency and reached a revised settlement agreement that required Musk to temporarily relinquish his role as chairman of Tesla’s board of directors.
His 2018 tweets also sparked a shareholder class action lawsuit from Tesla investors. They alleged that Musk’s tweets misled them and said relying on his statements to make transactions was costing them significant sums.
The shareholder transactions in question took place over a 10-day period before Musk appeared to admit that a privatization deal was not going to happen in 2018.
Musk said under oath on Friday that it was difficult to tie Tesla’s stock price to his tweets.
“There were many instances where I thought if I tweeted something the stock price would go down,” Musk said. “For example, at one point I tweeted that I thought I thought the stock price was too high…and it went higher, which was, you know, counter-intuitive. “
A sharp increase in trading volume after tweeting
It is rare for senior executives of publicly traded companies to discuss their stock prices, as any commentary can influence price movements.
Daniel Taylor, director of the Wharton Forensics Analytics Lab and professor at the University of Pennsylvania, analyzed all Tesla stock trades made on August 1. 7, 2018, the day Musk tweeted. It calculated the total trading volume every minute from the market open to the time of Musk’s tweets about a takeover.
Taylor found that trading volume the minute Musk tweeted, at 12:48 p.m. ET that day, was over $350 million, and trading volume for Tesla shares the next minute was over 250. millions of dollars. By comparison, the average volume five minutes before Musk tweeted was 32 million per minute. The minute before Musk tweeted, the trading volume was $24 million.
“It’s generally true that correlation is not causation,” Taylor told CNBC on Friday, after Musk’s first day on the witness stand. “However, I am not aware of any alternative explanation for a 10x increase in trading volume the minute Elon Musk tweeted.”
Musk also testified about his low opinion of short sellers on Friday.
“I think short selling should be made illegal,” Musk said, calling short sellers “bad people on Wall Street” who “steal” other investors. He said they also planted stories in the media to “drive stocks down” and “do everything in their power to kill a business.”
Tesla was among the most short-sold stocks in August 2018, when Musk made statements about Tesla’s privatization. Tesla’s stock price jumped around 10% during trading that day. Short sellers face huge losses when a particular company’s stock goes up.
Some of the plaintiffs in the ongoing lawsuit claim that Musk’s “secure funding” tweets were intended to put upward pressure on Tesla stock prices, resulting in a so-called “short squeeze.”
Musk’s testimony is not yet complete and the court plans to hear from him again on Monday.
LOOK: Musk testifies on tweets