In Elon Musk’s trial, fraud isn’t just about false statements

Illustration of brain with abstract shapes and money elements.

Illustration: Shoshanna Gordon/Axios

In a San Francisco federal courtroom earlier this week, the jury was told her job No To determine if the tweets of Elon Musk, CEO of Tesla, in 2018 Taking the company private was wrong.

  • Instead, the group must decide on it state of mind in time.

why does it matter: legal concept of knowinglyor the state of mind required to take responsibility for certain actions, is central to white collar crimes such as fraud.

Fast catch up: Musk’s trial began Wednesday, with both sides making opening statements to the jury. Most importantly, the jury assumes that Musk’s tweets were false statements and that he acted recklessly in posting them.

  • But juries will have to decide if he (and separately, Tesla) He knew These statements were false, as well as whether material. Meaning, you could influence the actions of investors and cause financial damage.

what are they saying: “[Musk] “We learned that there were no investors who confirmed their support for the private deal,” the plaintiffs’ attorney told the jury after describing meetings Musk had with Saudi Arabia’s Public Pension Fund.

  • “Until now [he] On August 7: Affirm investor support – past tense.

the other side“What Mr. Musk was conveying was that he was serious about his desire to take Tesla private,” Musk’s lawyer told the jury, and that the CEO’s understanding was that financing wouldn’t be an issue — only getting shareholder approval.

  • He added, “Because of the circumstances, because of the leak [in the press about a possible take-private deal]Because Mr. Musk was thinking out loud, he tweeted the wrong words. In his opinion, the funding has been secured.”

be clever: “He knows [a] A really straightforward concept: It refers to the fact that the behavior is intended and meant to be done,” Thomas Gorman, partner at Dorsey & Whitney, tells Axios.

  • There are three elements to proving forgery: that the statements are false, that the person knows they are false, and that the data is material.
  • In some cases, it is enough to prove that the defendant acted extremely recklessly – that is, with disregard for whether his statements were true – to prove that he was a scientist.

Between the lines: “During a trial, the way you prove that someone knew something or acted recklessly is through emails,” says David Slovik, partner of Barnes & Thornberg. “[There’s] Almost always an internal email or report…or they have someone’s testimony in them.”

Elsewhere in Silicon Valley, there is another case Where the legal principle may apply. Former FTX CEO Sam Bankman-Fried took his constant “what happened” commentary to newsletter service Substack, creating the Two posts this week.

  • His insistence on continuing to speak publicly about the company was globally baffling, given all the lawsuits he faced. But this could all be about…you guessed it: knowingly.
  • From the early days of the FTX crash, Bankman-Fried claimed that he did not realize the true state of the company’s financial statements and that he had long distanced himself from the day-to-day management of Alameda Research’s trading activities.

Yes, but: Already, bits and pieces in the court documents contradict any claims he didn’t know about or believed otherwise.

  • For example, former Alameda CEO Caroline Ellison said in her petition hearing that she and Bankman-Fried created misleading financial statements last year for Alameda’s lenders.
  • Meanwhile, government documents recently Acquired by The New York Times It showed that a senior FTX engineer brought Alameda’s inappropriate use of funds to Bankman-Fried’s attention, but was told “it’s OK”.
  • A Bankman-Fried spokesperson declined to comment.

bottom line: Who knew what and when is the name of the fraud prosecution game.

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