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Elon Musk defends tweets in San Francisco securities fraud trial

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Alex Spiro, Elon Musk’s attorney, center, leaves court in San Francisco, California, U.S., Tuesday, Jan. 17, 2023.

Benjamin Fanjoy | Bloomberg | Getty Images

Tesla General director Elon Musk appeared in San Francisco federal court on Friday to defend tweets he posted to his tens of millions of followers in August 2018.

The tweets said he had “secured financing” to take his electric car company private for $420 per share and that “investor support” for such a deal had been “confirmed.”

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Tesla’s stock first halted trading after the tweets, then shares were highly volatile for several weeks. musk later said that he was in talks with Saudi Arabia’s sovereign wealth fund and was confident that financing would be obtained at the price he offered. The deal never happened.

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 entered into a revised settlement agreement that required Musk to temporarily step down from his role as chairman of Tesla’s board of directors.

His tweets in 2018 also sparked a class action lawsuit from Tesla investors. They claimed they were misled by Musk’s tweets and said it cost them a lot of money to rely on his statements about making deals.

The shareholder bidding in question took place over 10 days before Musk appeared to concede that a private deal would not happen 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 if I tweeted something, the stock price would go down,” Musk said. “For example, at one point I tweeted that I thought the stock price was too high … and it went up, which was, you know, not smart.”

Big increase in trading volume after he tweeted

Senior executives of public companies rarely discuss their stock price because any comment can affect price movements.

Daniel Taylor, director of the Wharton Forensics Analytics Lab and professor at the University of Pennsylvania, analyzed every Tesla stock trade that took place on August 7, 2018, the day Musk tweeted. It calculated the total trading volume every minute from the market open to when Musk tweeted about the buyout.

Taylor found that trading volume the minute Musk tweeted at 12:48pm ET that day was more than $350 million, and Tesla shares traded more than $250 million the next minute dollars. By comparison, the average volume in the five minutes before Musk’s tweet was $32 million per minute. A minute before Musk’s tweet, 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 know of no alternative explanation for the 10x increase in trading volume the minute Elon Musk tweeted.”

On Friday, Musk also expressed his low opinion of short sellers.

“I believe short selling should be illegal,” Musk said, calling short sellers the “bad guys on Wall Street” who “steal” from other investors. He said they were also planting stories in the media to “make the stock fall” and would “do everything in their power to make the company die.”

In August 2018, when Musk announced that he was going private, Tesla was one of the most shorted stocks. Tesla stock price increased by about 10% during trading that day. Short sellers face huge losses when a given company’s stock goes up.

Some of the plaintiffs in the ongoing lawsuit allege that Musk’s “secured funding” tweets were intended to put pressure on Tesla’s stock price, leading to a so-called “short decline.”

Musk’s testimony is still pending, and the court plans to hear it again on Monday.

WATCH: Musk testifies over the tweets

Tesla CEO Elon Musk to testify about 'secured funding' tweets in 2018

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