SAN FRANCISCO (AP) - A tweet by Elon Musk declaring he had the funding to take Tesla private in 2018 caused billions of dollars in damage to investors after the deal fell through. That's according to estimates presented Tuesday at a trial examining the haphazard handling of the acquisition proposal.
The startling estimates from two experts hired by lawyers for Tesla shareholders underscored the challenges facing the nine-member jury as the three-week trial draws to a close this week. U.S. District Judge Edward Chen expects to hand the case to the jury Friday.
Depending on the verdict, Musk and the electric carmaker he runs could face further financial consequences for his erratic behavior on the Twitter platform he now owns. Without admitting any wrongdoing, Musk and Tesla reached a $40 million settlement with securities regulators after Musk's troubling tweets in August 2018.
In this class action lawsuit on behalf of Tesla shareholders, jurors must first determine whether two tweets Musk abruptly posted on Aug. 7, 2018, misled Tesla investors. If jurors decide to hold Musk accountable for the tweets, which Chen has already determined were false, they face a potentially even more difficult task: calculating how much Musk - one of the richest people in the world - and Tesla should pay for the misleading tweets.
One of Tuesday's two experts, economist Michael Hartzmark, reviewed a report peppered with terms like "but-for" and "follow-on inflation" that calculated the damage Tesla shareholders suffered during a 10-day period in August 2018 at $4 billion to $11 billion, or $22.55 to $66.67 per Tesla share at that point.
Another expert, College of Maryland finance professor Steven Heston, reviewed an even more extensive report analyzing the impact of Musk's tweets on more than 2,000 types of Tesla stock options, relying largely on a formula known as the Black-Scholes model, which is often used by companies to value executive compensation packages.
When asked by a Musk lawyer about the reliability of his model, Heston acknowledged, "All models deviate from reality, that's why they are models."
Heston, who said he was paid $300,000 to $350,000 for his work in the case, declined to provide a specific estimate of investor damages, saying that was up to the jury.
The crux of the case is related to an Aug. 7, 2018, tweet in which Musk stated that "funding is secured" to take Tesla public. Musk abruptly put down the tweet minutes before boarding his private jet after being alerted that the Financial Times was about to run a story about how Saudi Arabia's public investment fund had spent about $2 billion to buy a 5% stake in Tesla to diversify its interests beyond oil, he testified.
Amid widespread confusion over whether Musk's Twitter account had been hacked or he was just joking, Musk put out another tweet a few hours later suggesting that a deal was imminent.
During the roughly eight-hour deposition, Musk repeatedly insisted that he had shareholders' interests in mind and believed he had a funding commitment from the Saudi fund, which was revoked after his "funding secured" tweet. Musk also testified that he still could have pulled off the acquisition by raising money from other investors and selling some of his shares in SpaceX, a rocket company he founded.
After consulting with Tesla's major shareholders, Musk decided that the electric car maker should continue to trade on the stock market - a decision that has paid off for him and other investors. Tesla shares are now worth more than eight times what they were at the time of Musk's takeover tweet, taking into account the two stock splits that have taken place since then.