Musk be­lieved he had ver­bal pact with Saudis for Tesla buy­out 29 Septem­ber

CEO views US SEC's se­cu­ri­ties-fraud al­le­ga­tion as flawed


Tesla CEO Elon Musk be­lieves he had a ver­bal agree­ment in place with Saudi Ara­bia’s sov­er­eign-wealth fund to help fi­nance a plan to take the auto maker pri­vate, ac­cord­ing to a per­son fa­mil­iar with the mat­ter, a con­tention that could pre­view how he will fight reg­u­la­tors’ ac­cu­sa­tion that he mis­led share­hold­ers.

Musk was sued Thurs­day by the Se­cu­ri­ties and Ex­change Com­mis­sion, which al­leged that he mis­led in­vestors when he tweeted last month that he had fund­ing se­cured to lead a Tesla buy­out. The agency, which is seek­ing to oust Musk from Tesla, said in its com­plaint that he “knew that he had never dis­cussed a go­ing-pri­vate trans­ac­tion at $420 per share with any po­ten­tial fund­ing source.”

Musk be­lieves the SEC’s ef­fort is flawed in as­sum­ing that a writ­ten agree­ment and fixed price were nec­es­sary for a deal, the per­son said. Musk also thinks reg­u­la­tors aren’t tak­ing into ac­count that Mid­dle East­ern busi­nesses rou­tinely op­er­ate us­ing ver­bal agree­ments in prin­ci­ple, the per­son said.

In ad­di­tion, Musk has told peo­ple that he could have led a go-pri­vate trans­ac­tion us­ing his own stake in SpaceX, if ma­jor Tesla in­vestors were on board. SpaceX is the pri­vately held aerospace firm that Musk con­trols and is val­ued at tens of bil­lions of dol­lars.

An SEC spokes­woman de­clined to com­ment about whether in­ves­ti­ga­tors looked into the pos­si­bil­ity of a ver­bal agree­ment and how much weight should be given to it.

The de­scrip­tions of Musk’s think­ing are the most de­tailed yet fol­low­ing the SEC law­suit.

In a state­ment on Thurs­day, he said he was “deeply sad­dened and dis­ap­pointed” by the SEC ac­tion. “In­tegrity is the most im­por­tant value in my life and the facts will show I never

com­pro­mised this in any way,” he said.

He had pre­vi­ously said that he an­nounced his pro­posal on Twit­ter on Aug. 7 be­cause he was be­gin­ning the process of talk­ing to key in­vestors and wanted to be trans­par­ent.

It is un­clear whether Musk’s lawyers will use those ex­pla­na­tions as they seek to counter the SEC al­le­ga­tions. He has added a new lawyer to his team, Chris Clark, a for­mer fed­eral pros­e­cu­tor who is now at Latham & Watkins in New York.

Clark rep­re­sented Mark Cuban in a 2013 trial in which the SEC ar­gued the bil­lion­aire in­vestor and sports mag­nate had com­mit­ted insider trad­ing. A jury found Mr. Cuban didn’t break any laws when he sold stock in a small In­ter­net com­pany af­ter learn­ing it would is­sue more shares.

A Tesla spokesman didn’t im­me­di­ately re­spond to a re­quest to com­ment.

Much is at stake for Musk and Tesla share­hold­ers. Tesla shares dropped nearly 14% to $264.77 on Fri­day. The SEC was ready on Thurs­day morn­ing to an­nounce a set­tle­ment with Mr. Musk when his lawyer called the agency to say the deal was off, ac­cord­ing to a per­son close to the sit­u­a­tion.

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