Shares of Tesla TSLA-Q and Twitter TWTR-N tumbled this week as investors grappled with the fallout and potential legal issues surrounding Tesla CEO Elon Musk and his $44 billion discussion to buy the social media platform.
Of the two, electric car company Musk has fared worse, with its stock down nearly 16 percent so far this week to $728. Twitter shares fell 9.5 percent for the week, to close Thursday at $45.08. Both stocks took a bigger hit than the S&P 500, which is down 4.7 percent for the week.
Combined with the malaise in broader markets, investors have had to consider the legal issues Musk is facing, as well as the possibility that his Twitter acquisition would be a distraction from managing the world’s most valuable automaker.
US securities regulators are investigating Musk’s late disclosure that he bought more than 5 percent of Twitter shares, the Wall Street Journal reported on Wednesday. Musk now owns more than 9 percent of the San Francisco company.
The Securities and Exchange Commission did not comment, leaving a message to Musk’s attorney.
A lawsuit filed by some Twitter shareholders last month alleges that Musk had a 5 percent stake on March 14, so he should have submitted forms to the Securities and Exchange Commission (SEC) to disclose that by March 24. Instead, Musk did not make the required disclosure until April 4, which the lawsuit alleged harmed less wealthy investors who sold Twitter shares in nearly two weeks before he disclosed his stake and raised the price.
Also Wednesday, a California federal judge handed a group of Tesla shareholders a big win, revealing his ruling that Musk falsely and recklessly tweeted in 2018 that he secured funding to take Tesla private when the deal wasn’t final. The tweets raised Tesla’s stock price at the time.
This ruling means that the jury in the contributor case will begin knowing that the judge ruled that Musk’s tweets were false.
At the time of the August 7, 2018, tweets, Musk was in talks with the Saudi Public Investment Fund regarding financing the deal. But Judge Edward Chen decided it wasn’t definitive when Musk tweeted: “I’m considering acquiring Tesla for $420. Funding secured.”
Chen wrote that there was “nothing concrete” about financing from the Public Investment Fund, and that discussions were clearly preliminary.
“There was no discussion about the purchase price of a share of the stock. As Chen wrote in his judgment, there was no discussion about what percentage of the company the PIF would own or the total amount of money the fund would contribute.
Musk’s lawyers asked Chen to reconsider, claiming they were unaware of cases in which the court had taken similar cases out of jury hands “where the statements were vague at best and were made in a context restricted to words and informal posts on Twitter.”
The August 2018 tweets got Musk into legal trouble. The Securities and Exchange Commission filed a securities fraud charge, which Musk and Tesla paid in 2018. They each agreed to pay a $20 million fine and have the company’s attorney review any of Musk’s tweets that could affect the stock price. The Securities and Exchange Commission is investigating whether Musk has violated this requirement.
Musk recently lost an attempt to overturn the settlement on the grounds that it violated his First Amendment free speech rights.
Since Musk made his offer of $54.20 per share to buy Twitter to the public on April 14, the shares have been at exactly the same price – $45.08. Analysts say this is an indication that investors are skeptical that the deal will go through even though Musk has raised the funding. Twitter shares are up 4.3 percent year-to-date.
However, Tesla shares are down 26 percent since the April 14 bid, in part due to concerns that Musk will be distracted as Tesla, which is headquartered in Austin, Texas, opens two new factories and deals with supply chain issues. Shares have tumbled more than 30% so far this year.
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