A U.S. appeals court on Wednesday upheld a jury’s verdict that cleared Tesla CEO Elon Musk and the company of liability in a case involving allegations that Musk misled investors with his 2018 social media posts.
The posts claimed he had “funding secured” to take Tesla private at $420 per share, a statement that caused a surge in Tesla’s stock price before the buyout deal fell through.
The 9th U.S. Circuit Court of Appeals, based in San Francisco, rejected arguments from Tesla investors who contended that the jury received improper legal instructions before delivering their verdict in February 2023.
The investors had argued that the judge had wrongly required them to prove that Musk knowingly made false statements, which they claimed unfairly heightened their burden of proof.
The investors’ lawyers pointed out that U.S. District Judge Edward Chen had already ruled that Musk’s tweets were inaccurate and reckless, making it unnecessary for shareholders to prove that Musk acted knowingly in order to establish liability.
However, the three-judge appellate panel disagreed. They agreed that Musk’s tweets were reckless but said that the issue of whether he acted knowingly remained important, especially in determining how to apportion damages among the defendants, including Tesla directors.
Ellyde Thompson, a lawyer for Musk and Tesla, praised the decision. A representative for the plaintiffs did not respond to requests for comment.
The case, filed in 2018, revolves around the tweets Musk posted on August 7, 2018, in which he said he was considering taking Tesla private at $420 per share—about 23% higher than the previous day’s closing price—and had “funding secured.” Later that same day, he tweeted that “Investor support is confirmed.”
Tesla’s stock price skyrocketed following the tweets, only to fall back after August 17, 2018, when it became clear that the buyout would not occur.
The investors’ lawsuit, which is separate from a $40 million securities fraud settlement Musk reached with the U.S. Securities and Exchange Commission (SEC) in 2018, alleges that Musk and Tesla misled investors, resulting in significant financial losses.
