How do you know when a “handshake” deal is a done deal?
Elon Musk has an analogy for that.
On the witness stand Monday as he defended his Tesla take-private tweets from 2018, Musk explained: If a bank tells you they’ll support your desire to buy a house, and you then agree to buy a house, the bank will give you a mortgage as a matter of course. “You still do that paperwork to do the transaction, but the transaction will go through,” he said in court at his fraud trial.
For a man who recently sold $62 million worth of Bel-Air mansions, Musk has some ill-informed ideas about how real estate transactions work. For most people, anyway.
The analogy sparked a bit of amusement from the attorney representing investors who say Musk defrauded them.
“When I bought my house, I got a written commitment from a bank,” plaintiff’s attorney Nicholas Porritt said. “You may be able to buy a house without having a written commitment from a bank, but the rest of us understand you need a written commitment from the bank before you start making offers.”
Musk quickly dropped the analogy. “That’s not how things work with a sovereign investment fund,” he said, and moved on to other explanations for having used the words “funding secured” in an Aug. 7, 2018, tweet for a take-Tesla-private deal that never happened and for which it was never shown that funding was in fact secured.
The funding was to come from Saudi Arabia’s gargantuan Public Investment Fund. Musk testified that an earlier agreement that involved a Saudi purchase of 5% of Tesla stock was struck as a handshake deal, so in the take-private discussion, Musk said, “It’s reasonable to assume you’d shake hands and that’s it.”
Musk had been discussing the take-private deal with PIF head Yasir Al-Rumayyan in 2018, a week before his tweet. But in his testimony Monday, Musk acknowledged no financial terms were agreed to. After the “funding secured” brouhaha, Al-Rumayyan asked Musk for more financial information on the deal and then called it off. Musk said in court that Al-Rumayyan “did not stick to his word.”
Investors say they believed that Musk’s tweet was legit, and they lost big money as the stock’s market value whipsawed in response, by billions of dollars.
No one involved in the potential deal but Musk has said they believed that funding was secured, including the Saudi fund.
Trial Judge Edward Chen, in U.S. District Court in San Francisco, instructed the jurors in the current case to regard the “funding secured” tweet as false. Four years ago, Musk signed a settlement with federal securities regulator in the wake of the tweet. Under that deal, the U.S. Securities and Exchange Commission can’t call Musk a fraud, and Musk can’t say he was acquitted of fraud charges.
The current case may turn on whether the jury believes Musk knew it was false when he tweeted it.
Although Musk was subdued and often spoke in fragmented and halting sentences when pressed by the investors’ attorney, he was markedly more assured under questioning by his defense team.
“I’m being accused of making materially false statements. I’m being accused of fraud. It’s outrageous,” he said.
The defense focused on the first sentence of Musk’s “funding secured” tweet, which in full read, “Am considering taking Tesla private at $420. Funding secured.” Musk emphasized that his interest in taking the company private was genuine. However, the lawsuit does not allege that Musk had no intention of taking the company private, but is focused on whether funding was secured.
Earlier, he said that because he owns a large stake in rocket company SpaceX and because SpaceX could also invest in Tesla, that meant funding was secured.
Musk returns to the witness stand Tuesday.