Two investors filed suit against Tesla CEO Elon Musk and the electric car company after he tweeted he wanted to take the firm private, causing the share price to inflate and short-selling investors to lose millions.
On Tuesday, Musk said he could finance the buyout of Tesla, founded in 2003, at a large premium to current valuation, at a price of $420 a share.
As a result, Tesla shares jumped 11 percent, causing so-called short-sellers who have been betting on the stock crashing for years to lose millions.
Short-selling involves borrowing overpriced shares in the belief that their price will decline, so they can be sold and then bought back at a lower price.
Musk, often the center of controversy, did not prove he had the funds to finance the operation — despite tweeting “funding secured.”
Kalman Isaacs, one of the investors who filed suit Friday in a San Francisco court, claimed Musk’s tweets were “designed to completely decimate short-sellers.” He said he had to buy around 3,000 Tesla shares on Wednesday, the day after Musk’s tweets, to limit his losses.
William Chamberlain, another investor, also filed suit with accusations of artificial inflation.
Chamberlain said Musk and Tesla “artificially drove the price of Tesla shares up as much as $45.47 from their August 6, 2018 closing price ($341.99).”
The US Securities and Exchange Commission (SEC) regulator contacted Tesla to inquire whether Musk’s statements were factual and why the disclosure was made on Twitter rather than in a regulatory filing, according to media reports.
Musk has done little to hide his disdain toward financial speculators, whom he regularly mocks on his Twitter account.
In a blog post, he said going private would liberate the company from the quarterly reporting cycle, allowing it to be “free from as much distraction and short-term thinking as possible.”