Former Tesla Chief Financial Officer Deepak Ahuja supported the claims of Tesla (TSLA) CEO Elon Musk during testimony Wednesday in a class-action lawsuit filed by federal shareholders pending against Musk and Tesla directors.
The case, which says Musk and certain board members should be held liable for stock price volatility in August 2018, alleges Musk artificially inflated Tesla’s stock price when he tweeted that he had “secured the funding” to Taking Tesla private.
“When you saw that tweet, did you think it was a lie, sir?” An attorney for Musk and the directors requested testimony during the fifth day of the hearing.
“I didn’t,” said Ahuja. “That was consistent with the facts I knew, with the information I had.”
August 7, 2018 Tweet by Elon Musk
To win their case, shareholders must prove that Musk knew at the time of the tweets that the information contained in them was materially false, and that the information caused them to buy or sell Tesla stock to their detriment.
Superior Circuit Judge Edward Chen, who is presiding over the case, has already ruled, instructing the jury of nine that Musk’s funding statement was untrue. The judges are therefore tasked with deciding whether the tweets were material — the ones that a reasonable investor would rely on when making investment decisions — and whether Musk believed his tweets were true or false.
Ahuja said that at the time of Musk’s “funding secured” tweet, he and Musk believed that Saudi Arabia’s Public Investment Fund (PIF) was ready to fund a full take-private transaction. Ahuja said this understanding is based on a history of meetings he, Musk, and others at Tesla held with PIF representative Yasir Al-Rumayyan, dating back to March 2017.
“My impression was that even without another investor, they were willing to fund the deal to go private,” Ahuja said.
Ahuja explained that Musk didn’t respond to an earlier meeting in 2017 where Masayoshi Son, the founder of PIF and wireless giant Softbank, expressed interest in investing in Tesla. Both “clearly understood” that the financial implications of their proposals would likely require investments of between $30 billion and $60 billion, Ahuja said.
The story goes on
More than a year later, on July 31, 2018, Ahuja said Musk had decided to move forward with the PIF’s privatization bid. Days later, on August 3, he brought the proposal to Tesla’s board of directors. Musk’s memo to the board, Ahuja said, stated that the PIF was willing to fund the entire transaction.
“Did you believe that was a truthful statement?” Tesla’s attorney asked.
“It was,” Ahuja replied. “The Board has given due and serious attention to Elon’s proposal.”
Tesla CEO Elon Musk exits the Phillip Burton Federal Building on January 24, 2023 in San Francisco, California. Musk testified at a lawsuit in which investors sued Tesla and Musk over his August 2018 tweets, saying he would take Tesla private with funding he secured. The tweet was found to be false, costing shareholders billions of dollars when Tesla’s stock price allegedly began to fluctuate as a result of the tweet. (Photo by Justin Sullivan/Getty Images)
When questioned by the shareholder attorney, Ahuja admitted that Musk had not yet engaged with legal or financial advisors when Musk emailed the board with the tweeted $420 per share proposal.
The shareholders’ attorney pressed Ahuja on the fact that a certain dollar amount to take Tesla privately was not discussed at the July 31, 2018 meeting. However, according to Ahuja, regarding the Take Private deal, Al-Rumayyan said: “We are ready to act”.
Ahuja later said the Saudi fund at one point indicated that a take-private transaction would require funds of up to 50% of Tesla’s market cap at the time. He said PIF’s Al-Rumayyan had indicated they would likely fund the deal on their own, but would turn to UAE-based funds if more capital was needed.
Ahuja acknowledged that the parties had not discussed potential regulatory hurdles, specifically whether US authorities would review the PIF and potentially prevent it from owning a significant stake in Tesla given legal restrictions on foreign investment in US-based companies.
Plaintiff shareholders also questioned Ahuja about Musk’s testimony from the witness stand earlier in the week, saying his “funding secured” language included the possibility that he could sell his private stake in SpaceX to fund a take-private deal . In calls he was involved in, Ahuja said he was not made aware of a proposal that would involve equity from SpaceX stock sales.
The testimony is running. Judge Chen said the trial is expected to take three weeks.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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