Former Tesla CFO Deepak Ahuja backed claims by Tesla (TSLA) CEO Elon Musk during his testimony Wednesday in an ongoing federal shareholder class action lawsuit against Musk’s directors. and Tesla.
The case, that Musk and certain board members should be held liable for stock price volatility in August 2018, alleges that Musk artificially inflated Tesla’s stock price when he tweeted that he had “secured funding” to take Tesla private.
“When you saw that tweet, did you think it was a lie, sir?” a lawyer for Musk and the directors asked during testimony on the fifth day of the trial.
“I didn’t,” Ahuja said. “It corresponded to the facts that I knew, to the information that I had.”
To win their case, shareholders must prove that at the time of the tweets, Musk knew the information they contained was materially untrue and that the information caused them to buy or sell Tesla stock to their detriment.
Senior District Court Judge Edward Chen, who is presiding over the case, has already ruled and instructed the nine-member jury that Musk’s funding statement was false. The jurors are therefore tasked with deciding whether the tweets were material — those on which a reasonable investor would rely to make investment decisions — and whether Musk believed his tweets to be true or false.
Ahuja said that at the time of Musk’s “Funding Secured” tweet, he and Musk believed the Saudi Public Investment Fund (PIF) was ready to fund a full privatization deal. Ahuja said that understanding was 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 in the absence of any other investors, they were willing to fund the deal to go private,” Ahuja said.
Ahuja explained that Musk had not acted at an earlier meeting in 2017, in which the founder of mobile telecommunications giant PIF and Softbank, Masayoshi Son, had expressed interest in investing in Tesla. The two “clearly understood” that the financial implications of their proposals would likely require investments of $30 billion to $60 billion, Ahuja said.
More than a year later, on July 31, 2018, Ahuja said Musk had decided to move forward with the PIF privatization bid. A few days later, on August 3, he presented the proposal to Tesla’s board of directors. Musk’s communication to the board, Ahuja said, explained that the PIF was willing to fund the entire transaction.
“Did you think that was a true statement?” Tesla’s attorney asked.
“It was,” Ahuja replied. “The board was giving Elon’s proposal serious and serious consideration.”
When questioned by the shareholders’ attorney, Ahuja admitted that when Musk emailed the board with the tweeted proposal of $420 per share, Musk had not yet hired any legal or financial advisers.
The shareholders’ lawyer insisted that a specific dollar amount to privatize Tesla was not discussed at the July 31, 2018 meeting. However, according to Ahuja, Al-Rumayyan said “we are ready to act” in reference to the privatization agreement.
Ahuja later said the Saudi fund had at one point indicated that it was understood that a privatization transaction would require funds totaling up to 50% of Tesla’s market capitalization at the time. He said PIF’s Al-Rumayyan had indicated he would likely fund the deal alone, but would approach UAE-based funds if more capital was needed.
Ahuja admitted that the parties did not discuss potential regulatory hurdles, particularly whether U.S. authorities would review and potentially block the PIF from owning a significant share of Tesla, given legal limitations on foreign investment in U.S.-based companies. United States.
The plaintiff shareholders also questioned Ahuja about Musk’s testimony on the witness stand earlier in the week, saying his “secured funding” language included the possibility that he could sell his private shares in SpaceX to fund a privatization deal. . In discussions he was involved in, Ahuja said, he had not been made aware of a proposal that would involve equity from the sale of SpaceX stock.
Testimony is ongoing. Judge Chen said the trial is expected to last three weeks.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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