“It seems to me it’s not factually very complicated,” U.S. District Judge Edward Chen said at a hearing Thursday in San Francisco. He added that though the Saudi fund had expressed interest, “funding had not been secured.”
Parsing Musk’s intent behind the Twitter post is at the heart of a dispute about whether the statement was “indisputably false,” as the shareholders argue — or, as his lawyers say, it was “entirely truthful.”
Investors are asking Chen to decide a couple of key legal issues by himself, without putting them to a jury. A ruling in favor of the investors would allow them to focus at trial solely on connecting Musk’s alleged false statement to their stock market loss.
Back in 2018, the tweet also got Musk and Tesla sued for fraud by the Securities and Exchange Commission. Musk is now seeking to be freed from restrictions on his tweeting that he agreed to as part of a settlement of that case.
“I would never lie to shareholders,” Musk said this week in a sworn statement to a New York judge who’s handling the SEC case.
“Let’s talk about falsity,” Chen said at the start of Thursday’s hearing. Much of the debate that followed focused on “Funding secured.”
Alex Spiro, a lawyer for Musk, said shareholders are over-thinking the tweet. “I do worry about dissecting it too much,” he told Chen, adding that “context matters.” Importantly, Musk is rich enough that he could have funded the going-private transaction himself, Spiro said.
“None of Mr. Musk’s deals have ever had a funding issue,” he told the judge. The entrepreneur — now the world’s richest person — has “great personal resources that he can bring to bear.” If anything, shareholders interpreted Musk’s tweet to mean “Elon might be making a bid to take it private,” Spiro said.
Nicholas Porritt, a lawyer representing shareholders, focused on the past-tense of the final word of the tweet. “Secured,” Porritt said, “means it’s in the bag, it’s locked and loaded.”
Yet, Musk never spoke to any potential investors other than the Saudi fund, which he intended to only take a small stake in the unformed transaction, Porritt said. “The whole thing was so tentative, so pie in the sky at this point in time, that he never had an idea of how much money” it would require, the lawyer said.
Chen had his doubts, too.
There was no term sheet with the Saudi fund, no price and no conditions laid out, Chen said. “A lot of things hadn’t been discussed, it seemed quite preliminary,” he said, adding: “How can there be a quote, deal, even if it’s a handshake deal?”
The judge said he’d issue a final ruling later.
The case is In re Tesla Inc. Securities Litigation, 18-cv-04865, U.S. District Court, Northern District of California (San Francisco).
