Question raised in multi-billion dollar dispute over Elon Musk’s Tesla tweet

Less than a month before a class-action lawsuit over an infamous Elon Musk tweet goes to trial, a judge this week ordered expert witnesses to testify, a possible sign that a case that could cost Musk billions of dollars in damages could be in jeopardy.

Musk is scheduled to go on trial Jan. 17 in federal court in California, where he would go against Tesla shareholders who claimed his 2018 tweets about taking Tesla private cost them millions by causing volatility in the company’s stock price.

“While some market participants expressed skepticism about Musk’s tweets, many also accepted them as accurate and truthful, as evidenced by the increase in Tesla’s stock price against the announced price of $420,” plaintiffs’ attorney Adam Apton wrote in a recent court brief. “As a result of the turbulence in the prices of Tesla stock, options and bonds caused by Musk and Tesla’s statements, investors lost billions of dollars from August 7, 2018 to August 17, 2018.”

The defense said the plaintiffs relied on two experts — Michael Hartzmark and Steven Heston — whose model for calculating damages was flawed. The judge suggested in a new order that he agreed.

“There are significant questions regarding Professor Heston’s use of adjusted prices rather than the actual observed trading data for each individual stock option,” Judge Edward Chen wrote.

In the end, the judge took no action because the plaintiffs said they would redo the calculations. That wasn’t good enough for defense attorney Alex Spiro.

“Plaintiff’s decision to change its approach to calculating option damages before trial — more than a year after the deadline for expert disclosures — without sufficient information for defendants to respond violates Federal Rule 26,” Spiro wrote, citing a section on expert testimony in the Rules of Civil Procedure . “This should not be done on the fly, with hundreds of millions of dollars at stake.”

The judge this week ordered the plaintiffs to explain themselves, raising questions about whether the expert testimony will ultimately be allowed.

Musk’s tweet on August 7, 2018 – “I’m considering taking Tesla private for $420. Funding secured” – was false, and the court has already found that Musk was willfully reckless. It cost him $40 million, which Musk had to pay to the Securities and Exchange Commission.

However, plaintiffs may not raise Musk’s settlement with the SEC at trial because, according to the judge, “the danger of unfair prejudice outweighs the probative value of the SEC settlements and complaints.”

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