Alex Spiro, Elon Musk’s attorney (center), leaves court in San Francisco, California, USA, Tuesday, January 17, 2023
Benjamin Fanjoie | Bloomberg | Getty Images
Are you 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 was “funded” to take his electric vehicle company private at $420 a share, and that “investor support” for such a deal had been “confirmed.”
Trading in Tesla stock first stalled after the tweets, and then the stock was very volatile for several weeks. Musk later said he had negotiated with Saudi Arabia’s sovereign wealth fund and was confident the funding would come at the price offered. The agreement never took place.
The SEC charged Musk and Tesla with civil securities fraud following the tweets. Musk and Tesla paid the agency $20 million in fines each and reached a renegotiated settlement agreement that would see Musk temporarily step down from his role as chairman of Tesla’s board of directors.
His tweets in 2018 also sparked a shareholder class action lawsuit from Tesla investors. They claimed that Musk’s tweets misled them and said that using his statements to make transactions cost them significant sums.
The shareholder deals in question took place over a period of 10 days before Musk admitted that the privatization deal would not go through in 2018.
Musk said under oath on Friday that it was difficult to link Tesla’s stock price to his tweets.
“There were many times when I thought that if I tweeted something, the share price would drop,” Musk said. “For example, at some point I tweeted that I thought the share price was too high… and it got higher, which, you know, is counterintuitive.”
A sharp increase in trading volume after a tweet
Senior executives of publicly traded companies rarely discuss the price of their shares, as any comment can affect the movement of prices.
Daniel Taylor, director of the Wharton Forensics Analytics Lab and professor at the University of Pennsylvania, analyzed all of the Tesla stock trades that took place on August 7, 2018, the day Musk tweeted. He calculated the total trading volume every minute from the moment the market opened until the moment Musk tweeted about the takeover.
Taylor found that the trading volume the minute Musk tweeted at 12:48 pm ET that day exceeded $350 million, and the trading volume for Tesla stock exceeded $250 million the next minute. By comparison, the average volume five minutes before Musk’s tweet was 32 million per minute. A minute before Musk tweeted, trading volume was $24 million.
“It’s generally true that correlation is not causation,” Taylor told CNBC on Friday after Musk’s first day as a witness. “However, I am not aware of any alternative explanation for the 10x increase in trading volume the minute Elon Musk tweeted.”
Musk also announced his low regard for 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 ran stories in the media to “crash the stock” and “do everything in their power to kill the business.”
Tesla was among the most undervalued stocks in August 2018 when Musk made the Tesla privatization announcement. Tesla’s share price jumped about 10% during trading that day. Short sellers incur huge losses when a particular company’s stock rises.
Some of the plaintiffs in the ongoing lawsuit allege that Musk’s “safe finance” tweets were intended to put upward pressure on Tesla’s stock prices, resulting in a so-called “short squeeze.”
Musk’s testimony is still pending, and the court plans to hear it again on Monday.
WATCH: Musk testifies on Twitter