A group of investors in Tesla Inc. are set to receive an average of around $12,000 each to compensate for their losses resulting from Elon Musk’s infamous tweet in 2018. The tweet claimed that he had secured funding to take Tesla private at $420 per share, a claim which turned out to be false.
The US Securities and Exchange Commission (SEC) plans to pay the investors the $40 million, plus interest, that Musk and Tesla agreed to as civil penalties in order to settle a lawsuit brought by the regulator. However, this amount represents only about half of the $80 million in losses estimated by the SEC to have stemmed from the stock’s fluctuations following the tweet.
Furthermore, it is a small fraction of the $12 billion in losses calculated by an expert witness in a separate class action trial earlier this year.
The SEC has requested final approval of the payment plan
If the plan is approved, a total of 3,350 claims will be paid out from the settlement fund. On average, each investor will receive around $12,400. The judge has indicated that he will sign off on the plan on September 1st, assuming there are no objections from Tesla or Musk, who is currently the wealthiest individual in the world.
What explains the significant difference between the estimated losses of $80 million and $12 billion? The exact reasons are unclear, but the expert’s calculations likely encompassed losses suffered by all Tesla investors over a period of 10 days following the tweet on August 7, 2018. On the other hand, the SEC’s calculations only considered losses over a span of 27 hours after the tweet, excluded options and derivative trades, and focused solely on Tesla common stock. Additionally, not all eligible investors filed claims for compensation.
In the class action trial held in February, the investors failed to prove that Musk defrauded them with the tweet, as the jury cleared him of their claim in just two hours. This trial was one of the few instances where corporate securities fraud claims actually went to trial, as the majority are either dismissed or settled out of court.
The investors have since lodged an appeal
In the 2018 settlement with the SEC, both Musk and Tesla agreed to pay $20 million each in civil penalties and subject Musk’s Twitter posts related to the company to oversight by a company lawyer.
Musk and Tesla fulfilled their financial obligations, but Musk began to grow frustrated with the monitoring of his social media activity, arguing that this arrangement violated his right to free expression and accusing the SEC of harassment. In May, a federal appeals court rejected Musk’s arguments and upheld the validity of the agreement.
The regulatory case is titled SEC v. Musk, 18-cv-08865, and is being heard in the US District Court, Southern District of New York (Manhattan).