ByJoeNocera
GregoryWochosetal
v. TeslaInc.etalCase#17-CV-05828
Attacking Elon Musk’s
Freedom of Mouth
①THEORIGIN In2017,GregoryWochos,a clinicalneuropsychologistin
Wisconsin,owneda verypriceystock:Tesla.Thecompanywaslosinghundreds
ofmillionsofdollarseveryquarter,butWochosandotherinvestorsbelieved
ferventlythatChiefExecutiveOfficerElonMuskwasonthevergeofproducing
anelectriccarforthemasses.Indeed,theModel3 wasalreadyinproduction.
Musk—andTesla—promisedtheworldthatthecompanywouldsoonchurnout
5,000a week.Nowonderthestockwasup84%inthefirstninemonthsof2017!②THESUIT Uh-oh.OnOct.2,Teslareportedthatit hadmanufacturedonly
260 Model3sinthethirdquarteroftheyear.It blamedtheproblemon“produc-
tionbottlenecks.”Thestockdropped3.91%.Withindays,Wochosfileda class
actionintheU.S.DistrictCourtfortheNorthernDistrictofCaliforniaagainst
Tesla,Musk,andtwoothertopexecutivesatthecompany,allegingthatthey’d
made“materiallyfalseandmisleadingstatements.”Inotherwords,Wochoswas
suingMusk—ElonMusk!—for(allegedly)exaggerating.③THEISSUEIt usedtobea snapforplaintiffs’lawyerstoextractmoneyfrom
a companywhenitsstockdroppedsuddenly.Butin1995,Congresspassed
a “safeharbor”lawthatallowedcompaniesleewaytomakeforward-looking
statements—evenif theyturnedouttobewrong—aslongasthestatements
includedcautionarylanguage.Thus,Wochos’slawsuitrevolvedarounda sim-
plequestion:HadTeslaandMusk—ElonMusk!—beencautiousenough?④THEOUTCOMEAreyousittingdown?InAugust2018,lessthanthreeweeks
after Musk sent a now infamous tweet claiming he had the funding to take Tesla
private, U.S. District Judge Charles Breyer ruled that Musk and Tesla had been
cautious enough. “Federal securities laws do not punish companies for failing to
achieve their targets,” he wrote. Wochos refiled but lost again. On Jan. 26, 2021,
the suit ended with the 9th Circuit Court of Appeals agreeing with Breyer. As
for Wochos, let’s hope he held onto his stock. Since that little glitch in late 2017,
Tesla is up more than 1,000%. <BW> �Nocera is a columnist for Bloomberg Opinion● Othersuits?In its
2020 annualreport,
Teslacitesseven
casesfiledoverits
2016 acquisitionof
SolarCityCorp.and
nine class actions and
six derivative suits filed
over Musk’s tweet. Yet
another lawsuit claims
the CEO’s stock-based
compensation is an
example of “corporate
waste” and “unjust
enrichment.” A trial is
set for this summer.● Canplaintiffsstill
getmoneyfrom
securitiesclassaction
settlements?Yes.Data
fromStanfordLaw
Schoolshowthatjust
in the Southern District
of New York, plaintiffs
have recovered more
than $104 billion in
2,584 settlements
since the 1995 law
went into effect. Still,
2,768 cases have
been dismissed. So it’s
doable, but not easy.64
ILLUSTRATION BY GEORGE WYLESOL◼ LAST THING
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