Tesla’s Elon Musk Faces Lawsuit After Posting Shocking Tweet About Taking Company Private

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American entrepreneur Elon Musk’s shocking Twitter announcement that he was thinking of taking Tesla Inc. private has landed him with a fat lawsuit from displeased investors, reports the BBC.

On Tuesday, Musk tweeted that he was considering taking the electric car company private and that he had secured funding, valuing the company at $420 a share. Buying out the shareholders at this price would make the deal worth $82 million, although Musk didn’t specify where the money would come from. However, a deal of its nature would make it the biggest one in more than a decade.

As the result of his messages, Tesla share prices shot up 11 percent to almost $380, causing short sellers to claim he had manipulated share prices and misled the market.

Musk, who is Tesla’s largest shareholder with a 20 percent stake in the company, had previously expressed concern about what he referred to as “negative propaganda” from short sellers. His intention in taking the company private would be to protect Tesla from the distractions of share price volatility and pressure to meet quarterly financial targets, writes the BBC.

However, short sellers, who spin a profit by borrowing shares, selling them, and buying them back for less money, have reportedly lost millions since Musk’s unexpected comments.

One plaintiff by the name of Kalman Isaacs claims that Musk’s message was intended to “completely decimate” short sellers.

“Musk’s statement that he had secured funding was especially material and significantly moved the market,” Isaacs stated in the complaint. “Because Musk has not secured financing, and has issued false and materially misleading information into the market, short sellers of Tesla stock were forced to cover their positions by purchasing shares at artificially inflated prices after 12:48pm on August 7, 2018. Obviously, all purchasers of Tesla securities were injured as well.”

Another complaint filed by William Chamberlain claims that Musk “violated federal securities laws and artificially inflated Tesla’s share price,” reports the BBC.

The U.S. Securities and Exchange Commission is looking into whether Musk’s tweet was based on facts and is scrutinizing Tesla’s public announcements after the comments, reports Bloomberg.

Tesla and cars.
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San Francisco attorney Joe Tabacco expressed his view that shareholders may actually have a viable claim against Tesla, according to Bloomberg.

“Shareholders could potentially be misled if the statement omits material information. The market reaction shows Musk’s statement by itself was material. Anybody who purchased the stock on that news, if the news was in fact misleading, could have a claim, however, it would be very short class period.”

Musk and Tesla have yet to comment on the lawsuit, which was filed as a securities-fraud class action in federal court in San Francisco on Friday. It is called Isaacs v. Musk, 18-cv-04865, U.S. District Court, Northern District of California (San Francisco).