Tesla Inc. and its chief executive Elon Musk were sued by investors for allegedly fraudulently engineering a scheme to squeeze short-sellers, including through Musk’s proposal to take the electric car company private, Reuters reports.
The lawsuits were filed three days after Musk stunned investors by announcing on Twitter that he might take Tesla private in a record US$72 billion transaction that valued the company at US$420 per share, and that “funding” had been “secured”.
In one of the lawsuits, the plaintiff Kalman Isaacs said Musk’s tweets were false and misleading, and together with Tesla’s failure to correct them amounted to a “nuclear attack” designed to “completely decimate” short-sellers.
The lawsuits filed by Isaacs and William Chamberlain said Musk’s and Tesla’s conduct artificially inflated Tesla’s stock price and violated federal securities laws.
Tesla did not respond to a request for comment on the proposed class-action complaints filed in the federal court in San Francisco. The company is based in nearby Palo Alto, California.
‘Short-sellers borrow shares they believe are overpriced, sell them, and then repurchase shares later at what they hope will be a lower price to make a profit.
Such investors have long been an irritant for Musk, who has sometimes used Twitter to criticize them.
Musk’s Aug. 7 tweets helped push Tesla’s stock price more than 13 percent above the prior day’s close.
The stock has since given back more than two-thirds of that gain, in part following reports that the US Securities and Exchange Commission had begun inquiring about Musk’s activity.
Musk has not offered evidence that he has lined up the necessary funding to take Tesla private, and the complaints did not offer proof to the contrary.
But Isaacs said Tesla’s and Musk’s conduct caused the volatility that cost short-sellers hundreds of millions of dollars from having to cover their short positions, and caused all Tesla securities purchasers to pay inflated prices.
Tesla’s market value exceeds US$60 billion, and its shares rose US$3.04 to close on Friday at US$355.49.
According to his complaint, Isaacs bought 3,000 Tesla shares on Aug. 8 to cover his short position.
The proposed class period in Isaacs’ lawsuit ran from the afternoon of Aug. 7 through the next day, and in Chamberlain’s lawsuit ran from Aug. 7 to Aug. 10.
Meanwhile, Saudi Arabia’s Public Investment Fund (PIF) has shown no interest so far in financing Musk’s proposed US$72 billion deal, despite acquiring a minority stake in the company this year, Reuters reported, citing two sources familiar with the matter.
Investors and analysts viewed PIF as a natural financing partner. Beyond amassing a stake of just below 5 percent in Tesla, the sovereign wealth fund has poured tens of billions of dollars into technology investments, including US$45 billion in SoftBank Group Corp’s Vision Fund over five years.
However, a source who is familiar with PIF’s strategy said it was not currently getting involved in any funding process for Tesla’s take-private deal.
A second source close to the situation also said PIF was not taking part in any such plan at this stage. This source said that the Saudi fund would not make an investment of this kind without seeking guidance first from Softbank.
According to separate sources who spoke to Reuters last week, Softbank is currently not pursuing an investment in Tesla given its investment earlier this year in rival GM Cruise.
Tesla is facing a make-or-break moment in its eight-year history as a public company, as competition from European automakers is poised to intensify with new electric vehicles from Mercedes, Audi, BMW and other rivals.
Taking Tesla private would remove the pressure from Musk coming from hedge funds betting that the company’s stock will drop given its production issues and negative cash flow. It would also remove the company from the glare of Wall Street that comes with reporting quarterly earnings publicly.
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