DETROIT — Shares of Tesla and Twitter have plummeted this week as investors deal with the fallout and potential legal issues surrounding Tesla CEO Elon Musk and his $44 billion bid to buy the social media platform.
Musk’s electric vehicle company has fared worse than the two, with the stock dropping nearly 16% this week to $728. Twitter shares fell 9.5% for the week, closing at $45 on Thursday. ,08. Both stocks have taken a bigger blow than the S&P 500, which is down 4.7% this week.
In addition to the slump in broader markets, investors had to weigh legal issues for Musk and the possibility that his Twitter takeover could be a distraction from running the world’s most valuable automaker.
The Wall Street Journal reported Wednesday that U.S. securities regulators are investigating Musk’s late disclosure that he had bought more than 5% of Twitter’s stock. Musk now owns more than 9% of the San Francisco company.
The SEC declined to comment, and a message was left for Musk’s attorney.
A lawsuit filed by some Twitter shareholders last month alleges Musk’s stake reached 5% on March 14, so he should have filed forms with the SEC to disclose that by March 24. Instead, Musk didn’t make the required disclosure until April 4, hurting less-wealthy investors who sold Twitter stock nearly two weeks before announcing his store and pushing the price up, the lawsuit alleges.
Also on Wednesday, a federal judge in California handed a group of Tesla shareholders a major win, disproving his ruling that Musk erroneously and recklessly tweeted in 2018 that he had obtained funding to take Tesla private before the deal was finalized. The tweets drove Tesla’s stock price up at the time.
The ruling means jurors will enter a shareholder lawsuit knowing the judge ruled that Musk’s tweets were false.
On August 7, 2018, tweets, Musk was talking with the Saudi Public Investment Fund about financing the deal. But Judge Edward Chen ruled it wasn’t final when Musk tweeted, “Consider taking Tesla private for $420. Funding secured.”
Chen wrote that there was “nothing concrete” about the financing of the Public Investment Fund and that the discussions were clearly preliminary.
“There had been no discussion of what the purchase price would be for a stock, nor had there been any discussion of what percentage of the company would own the PIF or the total amount the PIF would contribute,” Chen wrote in his statement.
Musk’s attorneys have asked Chen to reconsider, arguing that they are not aware of cases where a court has taken similar issues out of the hands of a jury “where the statements were ambiguous at best and were issued in the limited and informal context of posts on Twitter.”
The August 2018 tweets have already landed Musk in legal trouble. The SEC has filed a securities fraud suit, which Musk and Tesla settled in 2018. Each agreed to pay a $20 million fine and have a corporate attorney review any Musk tweets that could affect the stock price. The SEC is investigating whether Musk violated that requirement.
Musk recently lost a bid to dismiss the settlement because it violates his First Amendment free speech.
Since Musk made his $54.20 per share offer to publicly buy Twitter on April 14, the shares have been the same: $45.08. Analysts say this indicates investor skepticism that the deal will go through, even though Musk has arranged the financing. Twitter shares are up 4.3% so far.
However, Tesla shares have fallen 26% since the April 14 offering, partly out of fears that Musk will become distracted if Tesla, headquartered in Austin, Texas, opens two new factories and tackles supply chain issues. Shares are down more than 30% so far this year.
