08 Feb 2023 Cases

Compass Lexecon Clients Elon Musk and Tesla Board of Directors Prevail in Multi-Billion Dollar Securities Fraud Trial

2 minute read


Jury Deliberates for Less Than Two Hours

On August 7, 2018, Elon Musk tweeted “Am considering taking Tesla private at $420. Funding secured.” In another tweet later that day, he wrote “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.” Tesla’s stock price initially rose on August 7, 2018, and then fell over the next ten days. On August 13, 2018, Mr. Musk issued a blog post clarifying his tweets, explaining what he meant by “funding secured.” On August 24, 2018, Mr. Musk announced that Tesla would remain a public company.

A Tesla shareholder (“Plaintiff”) filed a class action lawsuit alleging that Mr. Musk’s statements in the August 7 tweets were false and caused investors to suffer massive losses. Plaintiff retained two experts, one who analyzed Tesla option price movements, and another who analyzed Tesla stock price movements and concluded that Mr. Musk’s tweets caused stock and option investors to suffer billions of dollars in losses.

In a pretrial ruling, Judge Edward Chen (N.D. Calif.) found that the challenged tweets “were false and that Mr. Musk recklessly made those representations,” but left open for trial the question of whether the recklessly made tweets were material. Judge Chen later denied a change of venue motion based on a claim that the jury pool was biased against Mr. Musk.

To prepare for trial, defense counsel Quinn Emanuel Urquhart & Sullivan, LLP (“Quinn Emanuel”) retained Compass Lexecon Chairman and President Professor Daniel R. Fischel to rebut Plaintiff’s damages expert, and Compass Lexecon affiliate Professor Amit Seru of Stanford University to rebut Plaintiff’s options expert. Through multiple reports and depositions, Professor Fischel and Professor Seru concluded that Plaintiff’s and Plaintiff’s experts’ claims were fundamentally flawed for multiple reasons and failed to demonstrate the existence of any damages.

At trial, Mr. Musk explained and defended his August 7 tweets across three days of testimony. Multiple witnesses with first-hand knowledge that supported Mr. Musk’s testimony were called to testify, and the cross examination of Plaintiff’s experts exposed the fundamental flaws in their analyses and opinions. With that background and limited allotted time, Quinn Emanuel decided to rest their case without calling on any experts to testify. After less than two hours of deliberation, the jury returned a complete victory for the defense.

Compass Lexecon assisted Quinn Emanuel attorneys Alex Spiro, Andrew Rossman, Jesse Bernstein, and Anthony Alden in preparing the cross examinations of Plaintiff’s experts at trial and in responding to new opinions provided by the options expert leading up to the trial.

Professor Fischel was supported by a team led by Michael Keable that included Xanthi Gkougkousi, David Strahlberg, Samuel Hollander, and James Libby. Professor Seru was supported by a team that included Ed Grgeta, Christopher Fiore, Mihir Gokhale, and Greg Bhue.

A new version of Compass Lexecon is available.