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Elon Musk is facing a lawsuit over his 2018 plan to take Tesla private


More than four years after he said he provided the financing to take Tesla off the stock market, Elon Musk will try to defend that claim in a trial that began Tuesday in federal court in San Francisco.

The suit was brought by investors who argued that Mr. Musk, the electric car maker’s chief executive, did not actually raise the money to take Tesla private and acted recklessly in 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 trial focused on what Mr. Musk said on Twitter, which he acquired in October. “I’m considering taking a Tesla private for $420. Funding Secured,” he wrote in a post on August 7, 2018

Tesla’s stock price jumped after the tweet was posted, but sank after the proposal failed. The plaintiffs, Glenn Littleton and other investors, allege that Mr. Musk’s actions are responsible for the losses they suffered from movements in Tesla’s stock.

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

Mr. Musk and Tesla 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 step down as Tesla chairman and have a lawyer review certain statements he makes about the company on social media before publishing them.

The investors’ case will be heard in US District Court at a difficult time for Mr Musk and Tesla. The company sold fewer cars than executives promised and analysts expected, forcing Tesla to lower prices. Twitter’s revenue plummeted because many corporations are no longer running ads on the platform after Mr. Musk’s erratic behavior and his decision to fire a large portion of the company’s employees.

The case could prove difficult for Mr. Musk and Tesla, legal experts said. The senior district judge handling 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 now have summary judgment for recklessness and misrepresentation,” said Adam S. 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 must prove 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 found that other statements he made were true and that those statements could have caused moves in Tesla’s stock.

In court documents, his attorneys pointed to statements they said fit that description. For example, Alex Spiro, one of Mr. Musk’s lawyers, argued that the movements in Tesla’s stock may have been caused by his “undoubtedly true” statement that “he is 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 prove that he has the funding to take Tesla private, he may seek to present new evidence and testimony in court that backs him up. He claimed that Saudi Arabia’s Public Investment Fund had agreed to provide the funding.

Text messages between Mr Musk and Yasir Al-Rumayan, who runs the Saudi fund, surfaced early last year in court documents. Reports indicate that Mr. Musk is asking about the fund’s commitment to the deal. Mr. Al-Rumayan responds that Tesla has not provided enough information.

“This is an extremely weak statement and does not reflect the conversation we had at Tesla,” Mr. Musk wrote in a text dated August 2018. “You have said that you are definitely interested in taking Tesla private and have wanted to do so since 2016. “

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

Mr. Musk’s legal team has subpoenaed Mr. Al-Rumayan and other officials of the Saudi fund, trying to compel them to testify at trial. But lawyers for the fund told the court on Thursday that the subpoenas were “legally deficient” and “frankly frivolous”. The next day, Mr Musk’s lawyers told the court 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 case harkens back to a very different time for Tesla. In 2018, the automaker was having a hard time ramping up production. Soon after, the problems subsided and sales rose rapidly. 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 as it reported disappointing sales figures and Mr Musk sold large amounts of stock to raise money for the Twitter acquisition. Tesla’s stock 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 is moving its headquarters in 2021. The lawyers argued that local media had “ saturates” the Bay Area, the former home of Tesla, with “biased and negative stories about Mr. Musk” that would bias jurors. Judge Chen denied the motion 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 strike down parts of the the settlement he reached with the SEC In that complaint, Mr. Musk argued that provisions of the agreement that prevented him from making public statements about certain Tesla-related matters violated his First Amendment rights.

And in a Delaware court, a Tesla shareholder trying to cancel a huge compensation package awarded to Mr. Musk in 2018. A Delaware judge could announce a sentence in the coming weeks.




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