Short seller Andrew Left on Thursday filed a securities class action against Tesla and its CEO Elon Musk, accusing Musk in California federal court of manipulating the company’s stock with a controversial tweet about his plans to take the electric-car maker private.
Left, who publishes the online newsletter Citron Research, cited a series of public statements from Musk, including an Aug. 7 tweet in which the business magnate announced he was “considering taking Tesla private at $420. Funding secured.”
The complaint, filed in U.S. District Court for the Northern District of California, alleges that Musk knew at the time there was no financial backing for the proposed buyout and that the fallout led to significant losses for investors who bought Tesla stock between Aug. 7 and Aug. 17.
The surprise announcement sparked a probe by the U.S. Securities and Exchange Commission and weeks of volatility in Tesla’s stock price, after media reports challenged Musk’s assertions regarding investor support. Musk later backtracked and said in a blog post Aug. 24 that Tesla would remain a publicly traded company.
Left, a well-known short seller whose publication aims to identify overvalued firms, said the tweets were part of a “fraudulent scheme” designed to target investors who short Tesla stock by selling shares they don’t own, on the belief that the price would likely decline.
“Defendant Musk artificially manipulated the price of Tesla securities with objectively false tweets in order to ‘burn’ the company’s short-sellers,” Left said. “In the succeeding days, the truth regarding the supposedly ‘secure’ financing needed to effectuate the going-private transaction began to emerge, exposing the fraudulent scheme, and in the process, injuring class period investors as the price of Tesla securities deteriorated rapidly.”
Left is represented in the lawsuit by Labaton Sucharow and the San Francisco law firm Kerr & Wagstaffe. Labaton partner Michael Canty announced the suit in a press release Thursday afternoon.
“This appears to be a textbook case of fraud,” Canty said in the release. ”We believe Musk attempted to manipulate the price of Tesla securities with false and misleading tweets, in a directed effort to harm short-sellers.”
Tesla’s press shop did not respond Thursday afternoon to an email seeking comment on the lawsuit.
According to the complaint, Tesla’s stock surged nearly 11 percent to close at $379.57 per share on the day of Musk’s go-private tweet. The spike, Left said, caused trading volume to jump to more than 30 million shares, representing more than $11 billion of purchases on the open market.
In response, short sellers were forced to cover their positions at “artificially high prices,” losing more than approximately $1.3 billion in a single day day, the complaint alleged.
Meanwhile, the Tesla’s stock declined steadily over the next 10 days, after The Wall Street Journal reported Aug. 8 that the SEC was probing Musk’s tweets. The following week, media reports refuted Musk’s accounts that he had engaged Goldman Sachs and Silver Lake as financial advisers on the supposed bid to take Tesla private, indicating that Musk had not secured the financing he needed.
By Aug. 17, Tesla’s shares were trading at $305.50, a decline of more than $74 from the close of trading on Aug. 7, the complaint said.
Left is represented by Canty, Christopher J. Keller, Eric J. Belfi, David J. Schwartz and Francis P. McConville of Labaton and James M. Wagstaffe and Frank Busch of Kerr & Wagstaffe. An online docket-tracking service did not list attorneys for Tesla and Musk.
The case is captioned Left v. Tesla.