As Musk bids For Twitter, his fight to tweet freely hits snag

April 23, 2022, 8:50 PM UTC

Tesla Inc. CEO Elon Musk earned the nickname “Teflon Elon” by successfully fighting off multiple legal challenges. But a recent court ruling suggests his run of personal victories may be endangered.

Last week, it was revealed that a San Francisco judge had determined that one of Musk’s 2018 tweets about taking his company private was a lie. 

It’s one of at least a dozen high-profile cases that Tesla or Musk are involved in years after he posted the infamous “funding secured” tweet, sending shares soaring and inviting the wrath of the U.S. Securities and Exchange Commission.

Now, as Musk ramps up his battle to buy Twitter Inc., the lingering ramifications of his prior use of the social media platform may come back to haunt him.

The judge’s decision tips the scales heavily in favor of Tesla investors who are suing Musk and Tesla for as much as $12 billion in trading losses they blame on the go-private tweets. That case is set for a jury trial in January.

The decision also poses a threat to Musk’s effort to unleash himself from oversight by the SEC—a quest so personal for the world’s richest person that he became visibly emotional while lambasting the agency during a TED talk in Canada last week.

Securities law experts including Columbia Law School professor Jeffrey Gordon say that being ruled a liar after years of insisting his tweets were truthful will make it harder for the voluble billionaire to wriggle out from underneath the “Twitter Sitter”— the moniker for the arrangement with the SEC that a Tesla official pre-approve what Musk says on social media about certain company-related topics, like production.

Musk said in a sworn statement in New York federal court last month that he “never lied to shareholders.” 

That was before U.S. District Judge Edward Chen in San Francisco issued his ruling, which remains sealed from public view. 

Musk is trying to appeal the finding, saying in a filing Friday that the judge “parsed the individual phrases of the various tweets and indicated certain other information should have accompanied the tweets, even though the short-form Twitter medium limits the number of characters per tweet.”

Musk’s lawyer, Alex Spiro, didn’t respond to a request for comment on the SEC fight, which is ongoing in New York. But his response to Chen’s ruling on April 16 was defiant.

“Nothing will ever change the truth, which is that Elon Musk was considering taking Tesla private and could have,” the attorney said. 

Gordon said the Tesla CEO isn’t helping himself by continuing to defend the tweet.

“Musk’s subsequent denialism in the face of Judge Chen’s ruling will further weaken his case against the SEC,” he said.

Not all securities experts agreed Chen’s ruling was so potentially damaging. James D. Cox, a professor at Duke Law School, said the SEC faces an uphill fight trying to apply a ruling from a San Francisco lawsuit to a New York case involving different parties. 

Going forward, the challenge facing the SEC is how to regulate high-profile public figures like Musk with millions of Twitter followers, with these VIPs knowing the potential impact of their statements on capital markets, said Jill E. Fisch, a professor at the University of Pennsylvania Law School. 

“Musk is the current and most visible example of this,” Fisch said. “He’s not likely to be the only one.”

The SEC declined to comment.

As for Musk’s other legal woes, he’s awaiting a ruling any day following a $13 billion trial in Delaware over his role in the electric-car maker’s 2016 buyout of SolarCity. 

In the San Francisco case, Bloomberg Intelligence estimated before Chen issued his ruling that the lawsuit could settle for between $260 million and $380 million.

“The price of settlement just went way up,” said Adam C. Pritchard, a professor at the University of Michigan Law School. Chen’s ruling was a “huge win” for shareholders and an appeal of the decision by Musk “might be hard to come by,” he said. 

Nicholas Porritt, a lawyer representing shareholders, said he expects Chen’s ruling will become public in the next few days. 

Chen’s decision means that Musk won’t be able to argue to jurors that some key statements in his tweets were true, or that he didn’t act fraudulently when he made them, Porritt said.

A pretrial ruling that so thoroughly discredits a defendant in a securities fraud case is “very rare,” Porritt said. “Certainly it has not been obtained in any case of similar size to this one.”

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