More than four years after he said he secured funding to take Tesla private, Elon Musk will seek to defend that statement in a lawsuit that began Tuesday in federal court in San Francisco.
The case is being brought by investors who allege that Mr Musk, the electric carmaker’s CEO, failed to provide the money to take Tesla privately and acted recklessly when discussing the embryonic plan to do so. If the plaintiffs find a jury in their favor, Tesla and Mr. Musk could be forced to pay billions in damages.
The trial focuses on what Mr. Musk said on Twitter, which he acquired in October. “I’m considering taking Tesla private for $420. financing secured”, he wrote in a post on August 7, 2018.
Tesla’s stock price skyrocketed after the tweet was posted, but fell after the proposal fizzled. The plaintiffs, Glen Littleton and other investors, allege that Mr Musk’s actions were responsible for the losses they suffered on Tesla’s stock movements.
The company, Mr. Musk and their attorneys have defended the post, saying it was not a reckless act.
Mr. Musk and Tesla have settled a separate lawsuit filed by the Securities and Exchange Commission over his plan to take the company private. They paid fines to the SEC, and Mr. Musk agreed to step down as Tesla CEO and to have certain statements he makes about the company on social media reviewed by a lawyer before releasing them.
The investors’ lawsuit comes before US District Court at a difficult time for Mr. Musk and Tesla. The company is selling fewer cars than executives promised and analysts expected. Force Tesla to cut prices. Twitter revenue has plummeted because many companies have stopped showing ads on the platform following Mr Musk’s erratic behavior and his decision to lay off a large majority of the company’s employees.
The case could prove difficult for Mr. Musk and Tesla, legal experts said. The chief district judge hearing the case, Edward M. Chen, ruled last year that he agrees with the plaintiffs that Mr Musk’s 2018 Twitter posts about Tesla’s privatization were false and that Mr Musk, according to the In what the investors said, “intentionally reckless” about the truth in making the statements.
“You’ve already received a summary judgment of recklessness and false testimony,” said Adam C. Pritchard, a law professor at the University of Michigan. “These are the two most common defenses defendants come up with.”
Still, Judge Chen did not side with investors in other parts of her case — and that could open a path for Mr. Musk to victory. Plaintiffs must prove that the money they lost holding Tesla shares was connected to a statement made by Mr Musk that the court finds false, such as claiming he had the funding, legal experts said.
Mr. Musk could prevail if the jury finds that other statements he made were true and that those statements could have caused movements in Tesla’s stock.
In court documents, his attorneys have pointed to statements they believe fit that description. For example, Alex Spiro, one of Mr. Musk’s attorneys, claimed that the moves in Tesla’s stock may have been caused by his “undeniably true” statement that he was “considering taking Tesla private.”
“Any normal defendant would settle this case, but he has something worth trying,” Mr Pritchard said.
Tesla, Mr. Musk and Mr. Spiro did not respond to requests for comment.
While Mr Musk has always struggled to show he had the funding to take Tesla private, he may seek to bring new evidence and testimony to court to support him. He has claimed that Saudi Arabia’s Public Investment Fund has agreed to provide the funding.
Text messages between Mr Musk and Yasir Al-Rumayyan, who oversees the Saudi fund, surfaced in court filings early last year. The news shows Mr Musk asking about the fund’s commitment to the deal. Mr. Al-Rumayyan replied that Tesla did not provide enough information.
“This is an extremely weak statement and does not reflect the conversation we had at Tesla,” Mr. Musk wrote in an August 2018 text. “You said you were definitely interested in taking Tesla private and wanted to.” have been doing since 2016.”
“It’s up to you, Elon,” Mr. Al-Rumayyan replied. “We cannot approve something that we do not have enough information about,” he added in a later text.
Mr Musk’s legal team has summoned Mr Al-Rumayyan and other Saudi fund employees to compel them to testify in court. But the fund’s lawyers told the court Thursday that the subpoenas were “legally flawed” and “frankly frivolous.” The next day, Mr Musk’s attorneys told the court they were no longer pursuing the subpoenas.
A spokesman for the Public Investment Fund of Saudi Arabia did not respond to requests for comment.
Later in August 2018, Mr. Musk said in a blog post that Tesla would remain a public company.
The lawsuit dates back to a very different time for Tesla. In 2018, the automaker struggled to ramp up production. Soon after, the problems subsided and sales soared. The company started doing so well that many investors thought it would dominate the auto industry. Tesla’s market cap has surpassed $1 trillion.
But last year, investors reassessed the company’s prospects when it reported disappointing sales figures and Mr Musk sold large amounts of shares to raise money for his takeover of Twitter. Tesla’s stock price has fallen about 65 percent over the past year.
Mr Musk and his attorneys have tried to delay the process, including a motion this month that Judge Chen move the case to Texas’ Western District, which includes Austin, where Tesla moved its headquarters in 2021. The attorneys argued that local media had “saturated” the Bay Area, Tesla’s former home, with “biased and negative stories about Mr. Musk” that would disadvantage the jury. Judge Chen denied that request on Friday.
During Tuesday’s jury selection, Mr. Spiro questioned potential jurors about their personal views of Mr. Musk and Tesla and asked if they could remain neutral. Judge Chen warned Mr Spiro that his speeches to potential jurors “crossed a line”. A lawyer for the plaintiffs described Mr Spiro’s questioning as “harassing”.
This is hardly Mr Musk’s only legal battle.
Before the United States Court of Appeals for the Second Circuit, he is trying to have parts of it denounced the agreement he entered into with the SEC In this appeal, Mr. Musk argues that provisions of the settlement that limit his ability to make public statements on certain Tesla matters interfere with his First Amendment rights.
And before the Delaware Court of Chancery, a Tesla shareholder tries to devalue a huge compensation package awarded to Mr. Musk in 2018. The Delaware judge could announce a verdict in the coming weeks.
