To support his acquisition of Twitter, Elon Musk sold billions of dollars’ worth of Tesla stock. He also took out loans using Tesla stock as collateral. This had the predictable effect of causing a sharp decline in Tesla stock prices.
Shareholders filed a lawsuit in a Californian court alleging that Musk may have committed fraud while selling the shares. However, that seems to have little to do with Musk’s recent selloff of stock to help fund the Twitter deal, which was also partially backed by the cryptocurrency exchange Binance and venture capital company Andreessen Horowitz. Instead, they allege that tweets that Musk had made in August 2018 amounted to illegal price manipulation.
Elon Musk’s 2018 tweets said that he had secured funding to take Tesla private and said part of the funding came from Saudi Arabia’s sovereign fund. His tweets caused price swings in the Tesla stock price but turned out to be false. The shareholders allege that it cost them money.
Elon Musk and Tesla previously settled with the SEC over the offending tweets, though the SEC has alleged that Musk violated the settlement by failing to follow an order to have a lawyer vet his tweets since then. The SEC complaint landed in front of a Manhattan judge.
Now Elon Musk wants the case moved out of San Francisco to a court in Texas. He alleges that potential jury pools in California are likely to be biased.
Twitter is based in the San Francisco area. Elon Musk laid off a lot of the employees that hadn’t already resigned before he closed the deal to take Twitter private. His lawyer says many potential jurors probably know somebody who was laid off, which could taint sentiment in the case.
Musk also made a dramatic exit from California, including selling his Californian homes and moving Tesla’s headquarters to Texas. He blamed California’s response to the COVID-19 pandemic, which he said hurt Tesla’s ability to keep up with demand for its electric vehicles.
Tesla still has one Gigafactory in California and is building another factory to manufacture batteries for its vehicles. Tesla says it currently employs 47,000 people in the Fremont area. During the tug of war between Musk and California, the State of California declared Tesla an “essential business” that could keep its factory open.
According to the paperwork filed as part of the motion to move the trial, “To be clear, this motion is not being brought simply because Mr. Musk has been the subject of negative news coverage. Mr. Musk has been a public figure for more than a decade and recognizes that being the subject of negative and even unfair media attention comes with the territory. The local media and political establishment have attempted to depict Mr. Musk as personally responsible for causing material economic harm to the significant number of potential jurors impacted by the layoffs and to the City of San Francisco as a whole.”
Musk’s legal team says he is more likely to get a fair trial in the Western District of Texas, where he has been subjected to less vitriol coming from the media and there are fewer people who might have been negatively impacted by the layoffs. The Western District includes the Austin area, where Tesla opened the Gigafactory where the electric Semis are manufactured in April 2022. Elon Musk estimated that Gigafactory Austin would add 10,000 jobs in the area and called for more housing in the area. SpaceX also started building a manufacturing facility in the area in March 2021.
California likely won’t be the friendliest place for Elon Musk right now, considering that he moved Tesla’s headquarters out of the state and laid off a lot of Twitter’s employees – though he hasn’t made noise about moving Twitter’s headquarters yet. His legal team is simply requesting a move away from a potentially unfriendly San Francisco-area court to a place that may be less hostile to Elon Musk.