Short Sellers Sue Tesla Over Shock Elon Musk Tweet
The announcement over Twitter of a plan to take the company private was fraudulently engineered to ‘decimate’ short sellers, two lawsuits claim
Electric car maker Tesla and its chief executive Elon Musk have been hit by two lawsuits alleging that Musk’s announcement over Twitter that he was considering taking the company private was a fraudulent effort to attack short sellers.
Musk has previously criticised short sellers, who make money by borrowing stocks, selling them and then buying them back at an expected lower price.
His plan to take Tesla private was in part a way to free the company from the “negative propaganda” generated by such traders, Musk said last week.
‘Nuclear attack’
‘Nuclear attack’Musk also said the move, which would involve a record $72 billion (£56bn) deal valuing Tesla shares at $420, would also remove the distraction of share price swings and the expectation of meeting quarterly targets.
He said funding had been “secured”, but hasn’t provided further details.
The two plaintiffs in the short-selling lawsuits, likewise, provided no evidence to substantiate their claim that the funding did not exist.
Since last week’s tweet about the plan, Musk has provided no further comment about the idea, with more recent posts covering topics such as Tesla merchandise and the DefCon security conference.
The plaintiffs of the two lawsuits, both of which were filed on Friday, said Musk and Tesla artificially inflated Tesla shares and violated federal securities laws.
Kalman Isaacs, the plaintiff of one of the lawsuits, said Musk’s comments and Tesla’s failure to correct them amounted to a “nuclear attack” that aimed to “completely decimate” short sellers.
Volatility
Isaacs said in his complaint he was obliged to buy 3,000 Tesla shares on 8 August to cover his short position.
He said Tesla and Musk caused volatility in Tesla’s share price that cost short sellers hundreds of millions of dollars, while causing all Tesla securities purchasers to pay inflated prices.
Musk’s 7 August tweet helped Tesla’s stock rise more than 13 percent, although it has since returned more than two-thirds of the gain, in part following an announcement by the US Securities and Exchange Commission that it was inquiring about Musk’s activity.
The lawsuits by Isaacs and William Chamberlain were both filed in a federal court in San Francisco.
Musk and Tesla have not provided comment on the suits.
