Tesla and Musk face shareholder lawsuit for private tweet

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(Reuters) – Federal judge said Tesla Inc. and CEO Elon Musk were facing legal action saying they misled shareholders when Musk tweeted that he had obtained funding for privatize its electric car company in a $ 72 billion transaction.

FILE PHOTO: Tesla Model 3 vehicles made in China are seen during a delivery event at its plant in Shanghai, China, January 7, 2020. REUTERS / Aly Song / File Photo

U.S. District Justice Edward Chen ruled Wednesday that shareholders could try to prove Musk intended to defraud them with his August 7, 2018 tweet and follow-up messages about his plans for his business in Palo Alto, California .

The judge said shareholders could also try to prove that Musk’s tweet was the “immediate cause” of Tesla’s share price volatility that caused billions of dollars in losses.

Tesla did not immediately respond to requests for comment.

The lawsuit came after Musk amazed investors on August 7, 2018 by announcing on Twitter: “I plan to take Tesla privately for $ 420. Financing assured. “

Musk’s tweet helped boost Tesla’s share price more than 13% above yesterday’s close. But he quickly returned those gains, and by August 17, 2018, he had dropped 11% below what he was before the original tweet.

Some investors called the tweet a ploy to stifle short sellers, long an irritant to Musk, who was betting Tesla’s shares would fall.

Musk tweeted on August 24, 2018 that Tesla would remain public.

A month later, he agreed to pay a civil fine of $ 20 million to settle fraud charges by the United States Securities and Exchange Commission.

The SEC also asked Musk to resign as president and Tesla’s lawyers to check some of his tweets in advance. Tesla has entered into a separate $ 20 million deal with the regulator.

Tesla’s share price has since roughly doubled, and Musk is worth $ 37.6 billion according to Forbes magazine.

Leaving the shareholders’ case, which combined nine lawsuits, to go ahead, Chen said reasonable investors could have seen Musk’s August 7 tweet as a sign that he had unconditionally obtained enough funding to take Tesla privately.

“So read, the statement is not true,” Chen wrote.

The judge rejected Tesla and Musk’s argument that the tweet was not false or misleading because Tesla administrators should still have approved the transaction.

The proposed class action concerns shareholders who bought and sold Tesla shares from August 7 to 17, 2018. Their lawyers did not immediately respond to requests for comment.

Tesla shares closed $ 19.94 to $ 729.83 on Wednesday.

The case is In re Tesla Inc Securities Litigation, U.S. District Court, Northern District of California, No. 18-04865.

Jonathan Stempel reports in New York; Editing by Tom Brown

Our standards:Principles of the Thomson Reuters Trust.

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