On Tuesday, Tesla stockholders party to a class action argued that they are entitled to summary judgment on the elements of falsity, scienter, and reliance. They said that discovery has been one-sided on these issues and the electric vehicle maker cannot point to anything in the record capable of creating a genuine dispute of material fact.
The 2019 suit contends that CEO Elon Musk misled investors in August 2018 and several times thereafter when he tweeted about the proposed sale of the company. A media and investor frenzy ensued, with more than 2,400 articles written about the well-publicized tweet.
However, Musk did not have the funding secured for the sale and the attempt to off-load the privately held company was abandoned. This occurred at the same time Tesla’s share price roller-coastered, at first rising by 10% then declining by 11%. Shareholders filed suit alleging that Musk misled investors and caused the company to lose value.
In this week’s heavily redacted motion, the shareholders assert that undisputed facts show the statements Musk made were false when he made them and he knew it. As a result, the plaintiffs assert that the CEO acted with the requisite state of mind or scienter.
For example, one tweet said,“[o]nly reason why this is not certain is that it’s contingent on a shareholder vote.” The plaintiffs aver that not only was investor support not confirmed, but there were other contingencies that had to be resolved prior to a shareholder vote and Tesla’s sale that Musk knew about at the time of his tweet.
As to the element of reliance, the plaintiffs claim there is no doubt that the conduct meets a four-factor test. The filing explains that when using the fraud-on-the-market doctrine, reliance by every class member is presumed where the alleged misrepresentations were publicly known, material, the stock traded in an efficient market, and the plaintiff traded the stock between when the misrepresentations were made and when the truth came to light.
The plaintiffs claim they are entitled to the presumption and nothing Tesla can point to would create a genuine dispute of material fact on that issue.