Legal row over Musk’s tesla plan: Here’s how the industry reacted
Tesla is facing a barrage of lawsuits from investors angry at founder Elon Musk’s shock proposal to take the company private at $420 a share.
The colourful entrepreneur dropped the bombshell on social media last week, claiming that funding for the move had been secured – driving shares up 11 per cent before its price retreated on Thursday.
Tesla’s short-sellers – who would profit from share price falls – are furious, with some claiming Musk and the company misled the market.
One lawsuit, filed by Tesla investor Kalman Isaacs, said Musk’s tweets represented a “nuclear attack” on short-sellers, designed to “completely decimate” them.
His lawsuit, alongside another filed by William Chamberlain, claim Musk and Tesla’s behaviour violated US securities law, and artificially inflated the company’s share price.
The $420 offer values Tesla at $71bn (£56bn). As Musk owns 20 per cent of the company, he would need to find $57bn elsewhere to fund the move. He claims he has already secured funding to go private, although he did not clarify where it would come from.
A statement from Tesla’s directors said Musk talked to the board about going private last week, before his controversial tweet.
“This included discussion as to how being private could better serve Tesla’s long-term interests, and addressed the funding for this,” they said. “The board has met several times over the last week and is taking the appropriate next steps to evaluate this.”
US markets regulator the Securities and Exchange Commission (SEC) has contacted Tesla to clarify whether Musk’s claims were factual and why the announcement was not made through a regulatory filing.
Doug Davison, a dispute resolution lawyer at Linklaters, told Morning Wire there are two legal issues facing Tesla.
He said: “Firstly, is Musk telling the truth? If he is, then the way to do something like that when you’re chief exec is to make sure everyone gets the same information at the same time.”
“Fair disclosure rules mean that information should be disseminated simultaneously to everybody. The SEC has said we’re OK if people use social media like Twitter for announcements, but you have to tell your investors you’re doing that.”
Davison added that Tesla could face more legal action in the future. “Depending on what else comes out, other people might come out the woodwork to see if they can make a bit of cash.”
Russ Mould, investment director at AJ Bell, said: “Whether the lawsuit is justified or not, it does emphasise how Musk now needs to show that there is solid evidence of a firm plan – with funding options – to take Tesla private. This is important from a credibility perspective, a shareholder communications perspective and now a legal perspective.”