More than four years after he said he had secured the funding to take Tesla off the stock market, Elon Musk will try to defend that statement in a trial that begins on Tuesday in a federal court in San Francisco.
The case is brought by investors who claim Mr. Musk, the electric automaker’s chief executive, had not in fact lined up the money 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 could be forced to pay billions of dollars in damages.
The trial centers on what Mr. Musk said on Twitter, which he acquired in October. “Am considering taking Tesla private at $420. Funding secured,” he wrote in a post on Aug. 7, 2018.
Tesla’s stock price jumped after the tweet was published but sank after the proposal fizzled. The plaintiffs, Glen Littleton and other investors, assert 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 and said it wasn’t a reckless act.
Mr. Musk and Tesla settled a separate lawsuit that the Securities and Exchange Commission had filed over his plan to take the company private. They paid fines to the S.E.C., and Mr. Musk agreed to step down as chairman of Tesla and to have a lawyer review certain statements he makes about the company on social media before publishing them.
The investors’ lawsuit is going to trial in U.S. 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 tumbled because many corporations are no longer running ads on the platform after Mr. Musk’s erratic behavior and his decision to fire a large majority of the company’s employees.
The case could prove to be 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 the plaintiffs that Mr. Musk’s 2018 Twitter posts about taking Tesla private were false and that Mr. Musk was, in the words of the investors, “deliberately reckless” about the truth when making the statements.
“You’ve already got summary judgment on recklessness and false statement,” said Adam C. Pritchard, a law professor at the University of Michigan. “These are the two most common defenses that defendants prevail on.”
Still, Judge Chen did not side with the investors on other parts of their case — and that could give Mr. Musk a path to victory. The plaintiffs have to show that the money they lost on Tesla stock was tied to a statement by Mr. Musk that the court finds to be false, such as the claim that 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 lawyers have pointed to statements that they believe fit that description. For example, Alex Spiro, one of Mr. Musk’s lawyers, contended that the movements in Tesla’s stock could have been caused by his “indisputably true” pronouncement that “he was considering taking Tesla private.”
“Any normal defendant would settle this case, but he does have something that is 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 that he had the funding to take Tesla private, he may seek to introduce new evidence and testimony in court that backs him up. He has maintained that Saudi Arabia’s Public Investment Fund agreed to provide the financing.
Text messages between Mr. Musk and Yasir Al-Rumayyan, who oversees the Saudi fund, emerged early last year in court filings. The messages show Mr. Musk asking about the fund’s commitment to the deal. Mr. Al-Rumayyan responds that Tesla hadn’t provided 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 had wanted to do so since 2016.”
“It’s up to you Elon,” Mr. Al-Rumayyan replied. “We cannot approve something that we don’t have sufficient information on,” he added in a 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 the trial. But the fund’s lawyers told the court on Thursday that the subpoenas were “legally deficient” and, “frankly, frivolous.” The next day, Mr. Musk’s lawyers told the court that they were no longer pursuing the subpoenas.
A spokesman for Saudi Arabia’s 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 harks back to a very different time for Tesla. In 2018, the automaker was struggling mightily to increase production. Soon after, problems eased, and sales climbed rapidly. The company began doing so well that many investors thought it would come to dominate the auto industry. Tesla’s market capitalization surpassed $1 trillion.
But last year, investors reassessed the company’s prospects as it reported disappointing sales figures and Mr. Musk sold large amounts of stock to raise money for his acquisition of Twitter. Tesla’s share price fell about 65 percent 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 argued 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 rejected that request on Friday.
This is hardly Mr. Musk’s only legal battle.
In the U.S. Court of Appeals for the Second Circuit, he is trying to terminate parts of the agreement he reached with the S.E.C. In that appeal, Mr. Musk is arguing that provisions of the settlement 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 void a huge compensation packaged awarded to Mr. Musk in 2018. The Delaware judge could announce a verdict in the coming weeks.
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