Tesla CEO Musk taunts short sellers amid legal scrutiny

Roman Schwartz
August 12, 2018

Tesla Inc and its CEO Elon Musk were sued on Friday by an investor who said they defrauded shareholders in a scheme to manipulate the electric auto company's stock price, starting with Musk's August 7 tweet that he might take Tesla private.

The billionaire claimed funding had been "secured" for a deal which would value the firm at a price of $420 (£328) per share - more than double Apple's current value ($207 per share).

One lawsuit, filed by Tesla investor Kalman Isaacs, said Musk's tweets amounted to a "nuclear attack" on short-sellers, created to "completely decimate" them for not believing in Tesla's stock to date.

The two lawsuits filed by Isaacs and William Chamberlain on Friday alleged that Musk and Tesla's behaviour following the tweets violated USA securities law, and artificially inflated the company's share price.

The comment by Elon Musk on Twitter on taking the company private alerted the Securities and Exchange Commission and the regulatory body is said to have initiated an inquiry into the issue.

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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. The company is based in nearby Palo Alto, California. He said he had to buy around 3,000 Tesla shares on Wednesday, the day after Musk's tweets, to limit his losses.

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.

Musk's August 7 tweets helped push Tesla's stock price more than 13 percent above the prior day's close.

No evidence has been presented by either side to prove or disprove that funding had been secured to take the company private.

According to the complaint, Isaacs bought 3,000 Tesla shares on August 8 to cover his short position, or bet that the price would decline, in the company.

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