Short-seller Andrew Left of Citron Research filed a lawsuit Thursday against the electric-car maker Tesla (NASDAQ:TSLA) and its CEO Elon Musk for alleged violation of securities laws.
The lawsuit from Left charges that Musk manipulated the price of Tesla shares by writing false tweets in a bid to “burn” the company’s short-sellers.
READ: Tesla stock falls after Musk drops go-private plan, but Baird analyst says it is ‘positive for all stakeholders’
The suit zeroes in on Musk’s tweet from August 7, 2018, in which he said he was considering taking Tesla private and had secured funding for the endeavor.
Am considering taking Tesla private at $420. Funding secured.— Elon Musk (@elonmusk) August 7, 2018
The tweet set off a wave of controversy as investors raised questions about whether Musk could gather the money to support a privatization. In a blog entry posted on August 24, Musk later recanted and said Tesla would remain a public company.
Read: The complaint filed by Andrew Left against Tesla and Elon Musk in the US District Court: Northern District of California: San Francisco Division
Left claims that a number of short-sellers were forced to cover their positions in the wake of Musk’s tweets about taking Tesla private at US$420 per share, which pushed up the electric-car maker’s share price.
“Following these tweets, Tesla’s stock price surged, reaching an intraday high of US$387.46 per share, before closing at US$379.57 per share August 7, 2018, a nearly 11% jump from the previous closing price. Trading volume spiked to 30mln shares (compared to an average of 8mln), representing over US$11bn of purchases in the open market. In response to the tweets, many Tesla short-sellers were forced to cover their positions at artificially high prices, losing approximately US$1.3bn in a single day, according to media reports.”
Left’s lawyers, Labaton Sucharow LLP, announced the lawsuit in a press release.
“This appears to be a textbook case of fraud,” said Michael Canty, a partner with the firm filing the suit on Left’s behalf. “We believe Musk attempted to manipulate the price of Tesla securities with false and misleading tweets, in a directed effort to harm short-sellers.”
Left is reported to have taken out short positions against Tesla for at least two years.
Tesla shares stayed flat in afternoon trade at US$279.72.