Recently, Tesla got in hot water, as its founder Elon Musk seems to have misled shareholders. Regulators considered his tweet about going private an attempt to defraud shareholders and manipulate Tesla (TSLA) stock price.
Tesla Inc (NASDAQ: TSLA) stock has lately been up due to a 450% spike of Tesla car registrations in China and increasing its price target by some analysts. The number of Tesla’s registrations in March totaled 12,709. In comparison, this figure was only 2,314 cars in February. Such a spike in numbers could result from the Chinese government’s lift on coronavirus quarantine measures.
Besides, the carmaker revealed its best first-quarter performance ever, which put its stock on fire as early as the beginning of April. Tesla stock gained as much as 25% from January to the end of March and continued going up further.
However, Tesla stock was slightly down today. Yesterday, it closed with a $729.83 price and opened at $716.94 today. During the trading session, it started to gain again. The price at the moment of writing is 2.67% up, $749.31 per share.
Recently, Tesla got in hot water, as its founder Elon Musk seems to have misled shareholders.
Tesla CEO Elon Musk to Face Lawsuit
On August 7, 2018, Elon Musk tweeted:
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
He later said:
“Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.”
However, regulators considered the tweet an attempt to defraud shareholders and manipulate Tesla stock price. Soon after the tweet came, the lawsuit arose. On Monday, the U.S. District Court in California got a complaint alleging that some investors purchased Tesla stock “at artificially inflated prices and suffered significant losses and damages once the truth emerged.”
As Tesla CEO Elon Musk himself explained, he used the phrase “funding secured” because he was sure Saudi Arabia’s Public Investment Fund would guarantee funding to make Tesla a private company after a meeting with the fund’s managing director.
But U.S. District Judge Edward Chen said shareholders could try to bring an accusal against Musk who was defrauding them. Besides, he said that the tweet was the “proximate cause” of volatility in Tesla’s stock price that led to huge losses of billions of dollars.
The lawsuit reads:
“Musk’s tweets were an ill-conceived attempt to manipulate the stock price of Tesla upward in order to burn investors who had sold Tesla stock short and had the desired effect of creating a massive one-day increase in the price of Tesla stock and causing short-sellers large losses.”
Elon Musk has not provided a comment on the lawsuit yet. But Tesla said on Tuesday it formed a special committee to consider taking the company private. The committee consists of three independent board members — Brad Buss, Robyn Denholm, and Linda Johnson Rice.
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