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.