More than four years after he said he had secured financing to delist Tesla, Elon Musk will try to defend that claim in a trial that begins Tuesday in federal court in San Francisco.
The case is brought by investors who claim that Musk, the chief executive of the electric car maker, had not in fact raised the money to take Tesla private and acted recklessly in discussing the embryonic plan to do so. If the plaintiffs are able to get a jury to find in their favor, Tesla and Musk could be forced to pay billions of dollars in damages.
The lawsuit centers on what Musk said on Twitter, which he acquired in October. “I am considering taking Tesla private at $420. Financing secured”, wrote in a post on August 7, 2018.
Tesla’s stock price jumped after the tweet was posted, but plunged after the proposal fell through. The plaintiffs, Glen Littleton and other investors, claim that Musk’s actions were responsible for the losses they suffered on the Tesla stock moves.
The company, Musk and their lawyers defended the post, saying it was not reckless.
Musk and Tesla settled a separate lawsuit that the Securities and Exchange Commission had filed over their plan to take the company private. They paid fines to the SEC, and Musk agreed to step down as Tesla chairman and have certain statements he makes about the company on social media reviewed by a lawyer before posting them.
The investors’ lawsuit will go to trial in US District Court at a difficult time for Musk and Tesla. The company is selling fewer cars than executives promised and analysts expected, forcing Tesla to cut prices. Twitter’s revenue has plummeted as many corporations no longer run ads on the platform after Musk’s erratic behavior and his decision to fire the vast majority of the company’s employees.
The case could prove difficult for Musk and Tesla, legal experts have said. The chief district judge hearing the case, Edward M. Chen, ruled last year that he agreed with the plaintiffs that Musk’s 2018 Twitter posts about taking Tesla private were false and that Musk was, in his words of investors, “deliberately reckless” about the truth when making the statements.
“He already has a summary judgment for recklessness and false statements,” said Adam C. Pritchard, a University of Michigan law professor. “These are the two most common defenses in which defendants prevail.”
Still, Judge Chen didn’t side with investors on other parts of his case, and that could give Musk a path to victory. The plaintiffs have to show that the money they lost on Tesla shares was linked to a statement by Musk that the court finds false, such as the claim that he had the financing, legal experts said.
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 lawyers have noted statements they believe fit that description. For example, Alex Spiro, one of Musk’s lawyers, contended that the movements in Tesla’s stock could have been caused by his “indisputably true” statement that he “was considering delisting Tesla.”
“Any normal defendant would solve this case, but he has something worth trying,” Pritchard said.
Tesla, Musk and Spiro did not respond to requests for comment.
While Musk has always had trouble proving he had the funds to take Tesla private, he may look to present new evidence and testimony in court to back him up. He has maintained that Saudi Arabia’s Public Investment Fund agreed to provide the financing.
The text messages between Musk and Yasir Al-Rumayyan, who oversees the Saudi fund, surfaced early last year in court documents. The messages show Musk asking about the fund’s commitment to the deal. Mr. Al-Rumayyan replies that Tesla did not provide enough information.
“This is an extremely weak statement and does not reflect the conversation we had at Tesla,” Musk wrote in an August 2018 text. “You said you were definitely interested in taking Tesla private and wanted to do it since 2016.”
“It’s up to you, Elon,” replied Mr. Al-Rumayyan. “We can’t approve something we don’t have enough information about,” he added in a later text.
Musk’s legal team subpoenaed Mr. Al-Rumayyan and other employees of the Saudi fund to force them to testify at the trial. But lawyers for the fund told the court Thursday that the subpoenas were “legally deficient” and “frankly frivolous.” The next day, Musk’s lawyers told the court that they would no longer proceed with the subpoenas.
A spokesman for the Saudi Arabian Public Investment Fund did not respond to requests for comment.
Later, in August 2018, Musk said in a blog post that Tesla would remain a public company.
The lawsuit harkens back to a very different time for Tesla. In 2018, the automaker was struggling hard to ramp up production. Soon after, the problems calmed down and sales increased rapidly. The company did so well that many investors thought it would dominate the auto industry. Tesla’s market capitalization exceeded $1 trillion.
But last year, investors reassessed the company’s prospects when it reported disappointing sales numbers and Musk sold large amounts of shares to raise money for his Twitter acquisition. Tesla’s stock price fell 65 percent last year.
Musk and his lawyers have tried to delay the trial, including a request this month that Judge Chen transfer the case to the Western District of Texas, which includes Austin, where Tesla moved its headquarters in 2021. The lawyers argued that local media had They “saturated” the Bay Area, the former home of Tesla, with “biased and negative stories about Mr. Musk” that would hurt juries. Judge Chen denied that request on Friday.
This isn’t Musk’s only legal battle.
In the US Court of Appeals for the Second Circuit, he is seeking to rescind parts of the settlement he reached with the SEC. In that appeal, Mr. Musk argues that the settlement provisions that inhibit his ability to make public statements about certain Tesla matters intrude on his First Amendment rights.
And in the Delaware Court of Chancery, a Tesla shareholder is trying to undo a huge compensation package awarded to Musk in 2018. The Delaware judge could announce a verdict in the coming weeks.
