A Tesla shareholder filed a lawsuit against the Palo Alto-based electric car manufacturer and CEO Elon Musk, accusing the eccentric billionaire of scheming “to artificially manipulate the price of Tesla stock to completely decimate the company’s short-sellers” and hurting other Tesla securities owners as collateral damage.
Shareholder Kalman Isaacs filed the lawsuit, which seeks class-action status, on Friday with the U.S. District Court for the Northern District of California in San Francisco. Isaacs alleged securities fraud against Tesla and Musk, who on Tuesday tweeted that he was “considering taking Tesla private at $420” and that funding was secured.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
Musk’s tweet led to a trading frenzy for Tesla stock on Tuesday afternoon, and it prompted the Nasdaq stock exchange to suspend Tesla stock trading for nearly an hour and a half. Later that day, Musk released a company blog post elaborating on his tweet.
“As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders,” he wrote. “I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible.”
In his lawsuit, Isaacs argued that Tesla and Musk did not address the claim from who, where and how the funding to take the company private was secured in the blog post or in other media.
In a separate follow-up tweet Tuesday, Musk wrote, “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.”
Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote. https://t.co/bIH4Td5fED
— Elon Musk (@elonmusk) August 7, 2018
Isaacs also argued that Tesla’s board did not address the secured funding claim when they convened Wednesday to discuss Musk’s announcement about taking the company private.
“Musk had knowledge of the details of Tesla’s internal financial affairs and that financing for the deal had not been secured,” the lawsuit says. “As an officer of a publicly-held company, Defendant Musk had a duty to disseminate timely, accurate, and truthful information with respect to Tesla’s businesses, operations, future financial condition, future prospects and the Proposed Acquisition Transaction.”
As a result of Musk’s tweet, Tesla’s share price soared Tuesday to $379.57. On Friday’s market closing, Tesla’s shares were nearly 7 percent down, to $355.49.
Isaacs is suing Tesla and Musk on two counts of Securities and Exchange Commission violations against securities fraud and violation of the Exchange Act. Isaacs also is seeking class-action status for all persons who purchased Tesla securities after Musk’s tweet Tuesday and until Wednesday.
On Thursday, the San Francisco bureau of the SEC began looking into who Musk may have lined up to take Tesla private, according to the Wall Street Journal.
Since Tuesday’s tweet barrage, Musk has not addressed his plans to take Tesla private himself. But on Wednesday, Musk retweeted a screenshot of a survey from the Tesla blog Elektrek.Co on whether readers support Musk’s plans. More than 85 percent of those surveyed said yes.
It appears that there's overwhelming support from @ElectrekCo readers for @elonmusk's plan to take @Tesla private: https://t.co/PBkxqGqeIj pic.twitter.com/6xdC42zGWj
— Fred Lambert (@FredericLambert) August 8, 2018