Elon Musk faces trial over his 2018 plan to take Tesla private

More than four years after he said he secured the necessary funding to take Tesla off the stock market, Elon Musk will try to defend that statement in a trial that begins Tuesday in federal court in San Francisco.

The case is being brought by investors who claim Mr Musk, the electric carmaker’s chief executive, had in fact not lined up the money to take Tesla private and acted recklessly when discussing the embryonic plan to do so. . If the plaintiffs get a jury to find in their favor, Tesla and Mr. Musk could be forced to pay billions of dollars in damages.

The lawsuit centers on what Mr Musk said on Twitter, which he acquired in October. “I am considering taking Tesla private at $420. Financing secured,” he wrote in a post on August 7, 2018.

Tesla’s stock price jumped after the tweet was posted, but fell after the proposal fell through. The plaintiffs, Glen Littleton and other investors, say Mr. Musk’s actions were responsible for the losses they suffered on Tesla’s stock moves.

The company, Mr Musk and their lawyers defended the post and said it was not a reckless act.

Mr. Musk and Tesla have settled a separate lawsuit the Securities and Exchange Commission had filed over his plan to take the company private. They paid fines to the SEC and Mr. Musk agreed to resign as Tesla chairman and ask a lawyer to review certain statements he makes about the company on social media before releasing them. publish.

The investors’ lawsuit will go to trial in the US District Court at a difficult time for Mr. Musk and Tesla. The company is selling fewer cars than executives promised and analysts expected, forcing Tesla to lower prices. Twitter’s revenue has plummeted because many companies are no longer running ads on the platform after Mr. Musk’s erratic behavior and 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. Senior District Judge hearing the case, Edward M. Chen, ruled last year that he agreed with plaintiffs that Mr. Musk’s 2018 Twitter posts about taking Tesla in private were untrue and that Mr. Musk was, in the words of the investors, “deliberately reckless” as to the truth in making the statements.

“You already have summary judgment on recklessness and misrepresentation,” said University of Michigan law professor Adam C. Pritchard. “These are the two most common defenses that defendants prevail over.”

Yet Judge Chen did not side with the investors on other parts of their case – and that could give Mr Musk a path to victory. Plaintiffs must prove that the money they lost on Tesla stock was linked to a statement by Mr. Musk that the court finds false, such as the claim that he had the funding, legal experts have said.

Mr. Musk could win if the jury finds that other statements he made were true and that those statements could have caused moves in Tesla’s stock.

In court documents, his attorneys have pointed to statements they say fit that description. For example, Alex Spiro, one of Mr Musk’s lawyers, argued that Tesla’s stock moves could have been caused by his “unquestionably true” statement that “he was considering taking Tesla private”.

“Any normal defendant would do this, but he has something worth trying,” Mr Pritchard said.

Tesla, Mr. Musk and Mr. Spiro did not respond to requests for comment.

Although Mr. Musk has always struggled to show he has the funds to take Tesla private, he may seek to present new evidence and testimony in court that backs him up. He maintained that the Saudi Public Investment Fund had agreed to provide the financing.

Text messages between Mr Musk and Yasir Al-Rumayyan, who oversees the Saudi fund, appeared early last year in court filings. The posts show Mr Musk asking about the fund’s commitment to the deal. Mr. Al-Rumayyan responds 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 privatizing of Tesla and you wanted to do it since 2016.”

“It’s up to you Elon,” Mr. Al-Rumayyan replied. “We can’t approve something we don’t have enough information about,” he added in later text.

Mr. Musk’s legal team subpoenaed Mr. Al-Rumayyan and other employees of the Saudi fund, seeking to compel them to testify at trial. But attorneys for the fund told the court on Thursday that the subpoenas were “legally flawed” and, “frankly, frivolous.” The following day, Mr Musk’s lawyers told the court they were no longer pursuing subpoenas.

A spokesperson for the Saudi Public Investment Fund 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 was struggling to ramp up production. Soon after, the problems subsided and sales soared rapidly. The company began to do so well that many investors believed it would eventually dominate the automotive industry. Tesla’s market capitalization has exceeded $1 trillion.

But last year investors reassessed the company’s outlook as it reported disappointing sales figures and Mr Musk sold large amounts of stock to raise cash for its acquisition of Twitter. Tesla’s stock price fell about 65% last year.

Mr. Musk and his lawyers have tried to delay the trial, including a request last week that Judge Chen transfer the case to the Western District of Texas, which includes Austin, where Tesla moved its headquarters in 2021. The lawyers said argues that local media had “saturated” the Bay Area, Tesla’s former home, with “biased and negative stories about Mr. Musk” that would prejudice jurors. Judge Chen denied that request on Friday.

This isn’t Mr. Musk’s only legal battle.

In the United States Court of Appeals for the Second Circuit, he is trying to terminate parts of his agreement with the SEC. In that appeal, Mr. Musk argues that the settlement’s provisions that prevent him from making public statements about certain Tesla issues infringe on his First Amendment rights.

And in the Delaware Court of Chancery, a Tesla shareholder is trying to reverse a huge compensation award awarded to Mr. Musk in 2018. The Delaware judge could announce a verdict in the coming weeks.