More than four years after he said he secured the funding to take Tesla private, Elon Musk will seek to defend that statement in a trial that began Tuesday in a federal court in San Francisco.
The case has been brought by investors who allege Mr. Musk, the chief executive of the electric car maker, did not, in fact, raise the funds to take Tesla private and acted recklessly in discussing the embryonic plan to do so. If the plaintiffs get a jury to rule in their favor, Tesla and Mr. Musk will be forced to pay billions of dollars in damages.
The lawsuit revolves around what Mr Musk said on Twitter, which he bought in October. “I am considering taking Tesla private for $420. Financing assured,” he wrote in a message on August 7, 2018.
Tesla’s stock price jumped after the tweet was published, but fell after the proposal fell through. 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 lawyers have defended the post, saying it was not a reckless act.
Mr. Musk and Tesla settled a separate lawsuit filed by the Securities and Exchange Commission over its plan to delist the company. They paid fines to the SEC and Mr. Musk agreed to step down as chairman of Tesla and to have a lawyer review certain statements he made about the company on social media before publishing them.
The investors’ lawsuit is being tried in the US 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 cut prices. Twitter’s revenues have fallen as many companies stopped posting 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 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 private were false and that Mr. Musk, in the words of the investors, “deliberately reckless” about the truth in making the statements.
“You already have a summary judgment on recklessness and false statements,” said Adam C. Pritchard, a law professor at the University of Michigan. “These are the two most common defenses on which defendants prevail.”
Still, Judge Chen didn’t side with the investors in other parts of their case — and that could provide Mr. Musk with a path to victory. The plaintiffs must show that the money they lost in Tesla stock was linked to a statement by Mr Musk that the court found false, such as the claim that he had the financing, legal experts said.
Mr. Musk could prevail if the jury finds that other statements he made were true and that those statements could lead to movements in Tesla’s stock.
In court documents, his lawyers have pointed to statements that they believe fit that description. For example, Alex Spiro, one of Mr. Musk’s attorneys, argued that the movements in Tesla’s stock could have been caused by his “irrefutably true” statement that “he was considering delisting Tesla.”
“Any normal defendant would settle this case, but he has something worth trying,” Pritchard said.
Tesla, Mr. Musk and Mr. Spiro did not respond to requests for comment.
While Mr. Musk has always struggled to show that he had the financial resources to take Tesla private, he could try in court to present new evidence and testimony in support of him. He has maintained that Saudi Arabia’s public investment fund has agreed to provide the financing.
Text messages between Mr Musk and Yasir Al-Rumayyan, who oversees the Saudi fund, surfaced in court cases early last year. The messages show Mr. Musk asking about the fund’s commitment to the deal. Mr. Al-Rumayyan replies that Tesla has not provided 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 had wanted to do so since 2016 .”
“It’s up to you, Elon,” Mr. Al-Rumayyan replied. “We cannot approve something about which we do not have sufficient information,” he added in a later text.
Mr. Musk’s legal team subpoenaed Mr. Al-Rumayyan and other employees of the Saudi fund, seeking to force them to testify at the trial. But the fund’s lawyers 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 the subpoenas.
A spokesman for the Saudi Arabian 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 publicly traded company.
The lawsuit harks back to a very different time for Tesla. In 2018, the automaker struggled mightily to increase production. Soon after, the problems eased and sales rose rapidly. The company started doing so well that many investors believed it would come to dominate the auto industry. Tesla’s market cap passed $1 trillion.
But last year, investors reassessed the company’s prospects when it reported disappointing sales figures and Mr. Musk sold large amounts of stock to raise money for his takeover of Twitter. The share price of Tesla fell by about 65 percent last year.
Mr. Musk and his lawyers have tried to delay the trial, including a request this month for Judge Chen to transfer the case to the Western District of Texas, including Austin, where Tesla moved its headquarters in 2021. The lawyers argued that local media “saturated” the Bay Area, Tesla’s former home, with “biased and negative stories about Mr. Musk” that would disadvantage jurors. Judge Chen denied that request Friday.
During jury selection on Tuesday, Mr. Spiro questioned potential jurors about their personal opinions of Mr. Musk and Tesla, asking if they could remain neutral. Judge Chen warned Mr. Spiro that his speeches to potential jurors “crossed a line”. A lawyer for the prosecutors described the questioning of Mr. Spiro as ‘harassment’.
This is not Mr Musk’s only legal battle.
In the United States Court of Appeals for the Second Circuit, he is seeking to terminate parts of the agreement he reached with the SEC. business infringe on his First Amendment rights.
And in the Delaware Court of Chancery, a Tesla shareholder is seeking to void a massive compensation package awarded to Mr. Musk in 2018. The Delaware judge could issue a verdict in the coming weeks.
