Tesla CEO Musk accused of defrauding shareholders, sued by investors

Two class actions suits have been filed against Elon Musk, the Founder and CEO of electric car manufacturing company, Tesla Inc and the company itself. The main accusation against both is that they perpetrated a fraud on the shareholders of Tesla by misleading that the company is being turned into a privately held company. This was the message given by Musk in his tweet, some three days earlier and what’s more, he said the funds required to go through with that exercise, $72 billion, have also been tied up.

They have cited as evidence Musk’s tweet that came on August 7 and the very next day, Tesla shares went up by around 13%. It is a different matter that the prices subsequently fell. The names of the two who have filed these cases in a court in California are Kalman Issacs and William Chamberlain. In their lawsuits, they have said that through his tweets, Musk has helped in inflating the share price artificially. This is a violation under several federal laws governing securities, the suits claim.

The worst affected segment appears to be the short-sellers in the market who sell high and do the repurchase later. Interestingly, Elon Musk has openly criticised the short-sellers through his tweets.

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. The critical issue is if Musk had lied that the funds for this change in his company’s constitution has been arranged. His Twitter comments do not have any details or evidence of such a financial arrangement. On the other hand, the two who have filed the class action suits have also not disclosed any proof that Musk’s claim is a falsehood.

The two separate cases have been filed in a court in the Northern District of California, which is not far from where Tesla is located, Palo Alto.