Tesla is facing its first lawsuits over Elon Musk's share-price-boosting claims over Twitter that he is planning to take the company private.
The lawsuits have been launched by two short sellers - investors who take a financial position that will benefit them if the company's stock price goes down - who claim that Musk "fraudulently engineered a scheme" to push the company's stock price up, causing them losses.
The lawsuits were filed by investors Kalman Isaacs and William Chamberlain. According to Reuters, one of the lawsuits suggests that Musk's tweets were "false and misleading" and were intended to be a "nuclear attack" that would "completely decimate" short sellers.
Am considering taking Tesla private at $420. Funding secured.— Elon Musk (@elonmusk) August 7, 2018
Musk made the privatisation claim last week over Twitter, suggesting that he had "secured" funding to take the company private at a price of $420 per share - well above the $342.65 that the company's shares had been trading at on Tuesday.
The announcement caused a 13 per cent spike in the company's stock price, and big losses for short sellers. The company's stock price has since fallen back.
However, while six of the company's eight board-level directors indicated that some discussions had taken place, the company has not yet filed a formal disclosure, and it's still not clear exactly where Musk's "secured" funding is coming from.
Investor support is confirmed. Only reason why this is not certain is that it's contingent on a shareholder vote. https://t.co/bIH4Td5fED— Elon Musk (@elonmusk) August 7, 2018
If such a move did go ahead, it would be the largest-ever leveraged buy-out. It would also saddle the loss-making company with a high level of debt. Musk and his backers would no doubt be betting on driving the company into profitability and re-floating the company within two or three years.
Last week, just two days after the tweets, it was reported that Musk was facing a probe from the Securities and Exchange Commission (SEC) over the tweets, which could amount to share price manipulation.
Short sellers pay a fee to "borrow" shares from existing shareholders for a specified period of time.
They then sell the shares in the expectation that the price will fall, before buying them back just before the contract expires in order to return them to the original shareholder.
Short sellers make money if the value of the shares goes down, but can be stung with big losses should the price of the stock they are shorting go up.
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