Valenti Hanley PLLC

Tesla shareholders file suit amid post-tweet stock price drop

Shareholders in Kentucky and throughout the country who own stock in Tesla, Inc. were intrigued and more than a little concerned when its chief executive officer, Elon Musk, took to Twitter. On Aug. 7, he posted this cryptic tweet: "Am considering taking Tesla private at $420. Funding Secured."

The tweet first sent the stock price up to nearly $380 -- an 11 percent jump. However, over the next two weeks, it plummeted when no evidence of this funding could be found. Investors began to doubt the veracity of Musk's statement, and by Aug. 30, the stock price was just over $303.

Now shareholders have filed a federal class-action suit against the company. They contend that Musk never had the funding and lied in order to drive up the price to hurt those who opted to sell their stock based on his message. The complaint contends that "short sellers of Tesla stock were forced to cover their positions by purchasing shares at artificially inflated prices after 12:48 p.m. on August 7, 2018. Obviously, all purchasers of Tesla securities were injured as well." Other lawsuits are also being filed and may eventually be consolidated.

The U.S. Securities and Exchange Commission (SEC) has gotten involved as well. It is determining whether Musk intentionally tweeted information he knew to be untrue.

The company hasn't yet commented on the shareholder suit. However, some members of Tesla's board of directors have claimed that Musk recently discussed the possibility of taking the company private again and that he "addressed the funding for this to occur." However, they didn't provide any details about this funding.

One attorney who represents shareholders in litigation says. "The market reaction shows Musk's statement by itself was material. Anybody who purchased the stock on that news, if the news was in fact misleading, could have a claim." He notes however, that "it would be a very short class period."

Companies and those who represent them have duties to their investors. When investors are harmed by their unethical, dishonest or illegal behavior, they can and should determine what their legal options are. Attorneys experienced in representing investors can provide valuable legal guidance.

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