Lawsuits accuse Tesla's Musk of fraud over going-private talk

Tesla Inc and its Chief Executive Elon Musk were sued twice on Friday by investors who said they fraudulently engineered a scheme to squeeze short-sellers, including through Musk's proposal to take the electric car company private.

The lawsuits were filed three days after Musk stunned investors by announcing on Twitter that he might take Tesla private in a record $72 billion transaction that valued the company at $420 per share, and that "funding" had been "secured".

In one of the lawsuits, the plaintiff Kalman Isaacs said Musk's tweets were false and misleading, and together with Tesla's failure to correct them amounted to a "nuclear attack" designed to "completely decimate" short-sellers.

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.

Tesla did not respond to a request for comment on the proposed class-action complaints filed in the federal court in San Francisco. The company is based in nearby Palo Alto, California.

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.

Such investors have long been an irritant for Musk, who has sometimes used Twitter to criticize them.

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

The stock has since given back more than two-thirds of that gain, in part following reports that the US Securities and Exchange Commission had begun inquiring about Musk's activity.

Musk has not offered evidence that he has lined up the necessary funding to take Tesla private, and the complaints did not offer proof to the contrary.

But Isaacs said Tesla's and Musk's conduct caused the volatility that cost short-sellers hundreds of millions of dollars from having to cover their short positions, and caused all Tesla securities purchasers to pay inflated prices.

Tesla's market value exceeds $60 billion, and its shares closed on Friday up $3.04 at $355.49.

According to his complaint, Isaacs bought 3,000 Tesla shares on Wednesday to cover his short position.

The proposed class period in Isaacs' lawsuit runs from the afternoon of Tuesday through the next day, and in Chamberlain's lawsuit runs from Tuesday through Friday.

"First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best," said Musk in a statement.

The CEO also laid out several constraints he faces when running Tesla as a public company.

"As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders," he said. "Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term," he added. Tesla is also the most shorted stock in history, which exposes it to attacks from a large number of investors, Musk said.

Xinhua - Reuters