On May 10, 2022, Judge Edward Chen of the United States District Court for the District of Northern California unsealed an April 1, 2022 order granting in part a motion for summary judgment in a securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") against a designer and manufacturer of electric cars (the "Company"), its co-founder and CEO (the "Individual Defendant"), and its directors. In re Tesla, Inc. Sec. Litig., No. 18-CV-04865-EMC, 2022 WL 1497559 (N.D. Cal. Apr. 1, 2022). Plaintiff claims that the Individual Defendant inflated the Company's stock price by posting false and misleading statements on Twitter regarding a potential take-private deal. The case proceeded to summary judgment following the Court's prior denial of the Company's motion to dismiss in April 2020, which we covered here. Nearly two years later, the Court granted plaintiff's motion for summary judgment as to the Individual Defendant's statements about securing funding and investor support for the potential take-private deal because he was aware at the time of the statements that the take-private deal remained subject to a number of contingencies.

The Company is a designer and manufacturer of electric cars. On August 7, 2018, after allegedly having a preliminary discussion with a potential investor for a take-private deal, the Individual Defendant published a series of posts on Twitter, including that he had "funding secured" to take the Company private at a per-share price of $420, roughly a 20% premium over the stock's then-current trading price. The Individual Defendant published a blog post on the same day that contained further details about the potential take-private deal. On August 13, 2018, after further discussions with the potential investor, the Individual Defendant published a blog post that contained updates on discussions with the potential investor and next steps in the take-private deal. On August 23, 2018, however, the take-private offer was withdrawn, and the Company's Board of Directors voted to continue as a public company. Plaintiff alleged, among other things, that the Individual Defendant acted recklessly and made false or misleading statements when he stated on August 7, 2018 that: (i) he was "considering taking [the Company] private at $420. Funding secured"; (ii) "investor support is confirmed"; and (iii) the "[o]nly reason why this is not certain is that it's contingent on a shareholder vote." The Company opposed summary judgment arguing that the first two statements were too ambiguous to be misleading as a matter of law and that the third statement could not be misleading because a blog post published by the Individual Defendant that same day served as a corrective disclosure that cured any potential misrepresentation.

The Court granted summary judgment in favor of plaintiff on the issues of falsity and scienter as to each of these three statements. With respect to the "funding secured" tweet, the Court held that, although there "was some softness to the term secured," it implied at least a verbal commitment and some discussion of details. Accordingly, no reasonable jury could find this statement accurate and not misleading because "[t]he evidence of record shows that there was nothing concrete about funding coming from the [potential investor]." The Court further held that "[t]here is no dispute that, at the time of the tweet, [the Individual Defendant] knew all of the facts relating to [the Company's] interaction with" the potential investor. With respect to the statement that "investor support is confirmed," the Court held that "no reasonable [jury] could conclude that support from the [potential investor] was confirmed given the preliminary nature of the discussions between the [potential investor] and [the Company]." The Court also concluded that these statements were made recklessly because the Individual Defendant was "fully aware of the facts given his participation in [a] meeting with the [potential investor]" in which no agreement was reached.

With respect to the third statement that the deal was only contingent on a shareholder vote, the Court held that "no reasonable jury could find the statement accurate and not misleading as there were, in fact, a number of contingencies that had to be addressed before the matter could reach a shareholder vote." Moreover, the Court rejected the Company's argument that the Individual Defendant's blog post published the same day served as an effective corrective disclosure because the blog post "did not specify any contingencies other than the 'finaliz[ation] through a vote of our shareholders'" when the deal according to the Court remained contingent on a number of items such as "a determination of the terms and structure to take [the Company] private and investor agreement therewith, the hiring of financial and legal advisors, a formal proposal for the Board to review, a negotiation with independent directors, the preparation of legal and financial analysis and documentation, the signing of an agreement, the hiring of proxy advisors, and the filing of regulatory approvals."

Although the Court granted summary judgment on the issues of falsity and scienter as to all three statements discussed above (and denied it as to a fourth statement the Court determined was not misleading), the Court denied plaintiff's motion for summary judgment on the question of reliance. According to the Court, plaintiff—who sought to rely on the fraud-on-the-market doctrine to establish reliance—failed to establish that the Individual Defendant's statements impacted the Company's share price. In particular, the Court noted that there was evidence that when the Individual Defendant wrote the blog post, "which served as a partial corrective disclosure" following his tweets, no significant decline in stock price followed. The Court held that "arguably, the reaction to the tweets . . . was a response to [the CEO] contemplating taking [the Company] private and not to statements that, e.g., funding was secured or investor support confirmed."

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