Tesla is not out of the woods when it comes to Elon Musk’s brief attempt to take the company private.
Short sellers are now suing the company and Musk over what they see as the automaker manipulating the share price with allegedly false statement over the take-private move.
Andrew Left of Citron Research, a short seller activist who has often recommended shorting Tesla stock, initiated the class action lawsuit filed today.
He alleged that some short sellers were forced to cover their positions after Musk announced in a series of tweets that he is considering taking Tesla private at $420 per share and the stock price increased.
They wrote in the lawsuit:
Following these tweets, Tesla’s stock price surged, reaching an intraday high of $387.46 per share, before closing at $379.57 per share August 7, 2018, a nearly 11 percent jump from the previous closing price. Trading volume spiked to 30 million shares (compared to an average of 8 million), representing over $11 billion of purchases in the open market. In response to the tweets, many Tesla short-sellers were forced to cover their positions at artificially high prices, losing approximately $1.3 billion in a single day, according to media reports.
They argue that Musk made it sound like the plan to take the company private was more advanced than it actually was at the time.
Weeks later, Musk ended up abandoning the plan due to unforeseen complexities with current investors retaining their shares in the move.
While the plan is dead, Tesla and Musk are still facing some pretty significant blowback with a SEC probe and now this new class action lawsuit.
We contacted Tesla about the lawsuit and we will update if the company releases a statement.
Here’s the lawsuit in full:
Let me preface this with the usual “I am no lawyer but” I think this would be a hard case to win.
While there’s no doubt that Musk’s tweets had an impact on the stock price, they would need to show that Musk intentionally manipulated the stock price, which is harder to prove.
I believe that Musk really thought he could make this work and he just didn’t foresee the complexity of the move.
Therefore, he didn’t tweet that with the goal of manipulating the stock price but to let investors know that he was working on taking Tesla private, which was evidently true.
But that might just be me being naive here. What do you think? Let us know in the comment section below.