Two investors sued businessman Elon Musk and his company Tesla on Friday for allegedly manipulating the company’s share prices through false and misleading tweets, Reuters reported.
On August 7, Musk had announced on Twitter that he was considering taking Tesla private at $420 (approximately Rs 29,000) a share, and that funding was “secured”. He told employees that as a publicly-listed company, Tesla’s stock price was subject to “wild swings”, which are a distraction for the staff.
The tweets led Tesla’s stock to shoot up 11% to almost $380, Bloomberg reported. However, it lost about 7% over the next two days as investors questioned the feasibility of the idea and the United States market regulator reportedly began an investigation. Tesla has not provided any evidence of the “secured” funding.
A lawsuit by plaintiff Kalman Isaacs said the tweets amounted to a “nuclear attack” to “completely decimate” short-sellers. Short-sellers sell shares whose prices they believe will come down, and when that happens, buy them again to make profits.
“Because Musk has not secured financing, and has issued false and materially misleading information into the market, short sellers of Tesla stock were forced to cover their positions by purchasing shares at artificially-inflated prices,” Isaacs said.
In his letter to employees, Musk had said Tesla was the “most shorted stock in the history of the stock market”, and so was vulnerable to attacks by short-sellers who wanted the share price to drop.