Two New Lawsuits Against Tesla and Elon Musk

Tesla and its CEO Elon Musk receive two new lawsuits, accusing them of violating federal securities law for making false statements in order to boost the company stock price, CNN reported.

The complaints accuse Musk of intentionally misleading investors when he announced on Twitter that he had secured funding in order to take Tesla (TSLA) private.

CNN reported that the statement boosted Tesla’s stock price immediately, but since then it has lost most of those gains, reacting, at least in part, to reports from Bloomberg and the Wall Street Journal that the federal Securities and Exchange Commission is investigating Musk’s claim.

Tesla declined to comment for this story.

According to CNN, one of the lawsuits, filed by shareholder Kalman Isaacs, seeks class-action status on behalf of investors who bought Tesla stock on August 7 and August 8. Another, filed by William Chamberlain, seeks class action for those who bought or sold Tesla stock between August 7 and 10.

“It is clear that Defendant Musk tweeted materially false and misleading information regarding the Going Private Transaction to exact personal revenge and ‘squeeze-out’ the short-sellers who had purportedly been badgering him for months,” the complaint filed by Isaacs states.

Jill Fisch, a business law professor at the University of Pennsylvania Law School, told CNN that Chamberlain’s and Isaac’s lawsuits will only be successful if they can prove Musk and Tesla haven’t secured any funding for the transaction.

Even a “preliminary commitment” with an investor or bank would be enough to support the idea that Musk’s statements were made in “good faith,” Fisch said.

So, even if Musk did post the tweet hoping to damage short sellers by boosting Tesla stock price, it wouldn’t be illegal unless it was untrue, she said.

“The goal of the securities law is to provide the capital markets with accurate information, and people’s motivation are really beside the point,” Fisch said.

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