Hexbyte – Tech News – Ars Technica | Short seller sues Tesla, Elon Musk, claiming buyout tweets were fraudulent

Hexbyte – Tech News – Ars Technica |

Private parts —

Expect more lawsuits if Musk can’t prove he has funding lined up.


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Elon Musk in 2016.

Three days after Elon Musk tweeted that he had “funding secured” to take Tesla private, we still don’t know who, if anyone, has agreed to provide the billions of dollars needed to buy out the company. But plaintiffs’ lawyers aren’t waiting any longer for Musk to provide more details.

On Friday, stock trader Kalman Isaacs filed a class-action lawsuit arguing that Musk’s Tuesday tweets constituted securities fraud. The lawsuit, first reported by Reuters, appears to be the first one claiming that Musk’s Tuesday tweets violated federal securities law.

At the time of Musk’s tweet, Isaacs was short at least 3,000 shares of Tesla stock. That means that, at some point prior to Musk’s tweet, Isaacs had borrowed Tesla shares and sold them, betting that the price would fall and he would eventually be able to buy them back at a discount, pocketing the difference.

The flipside, however, was that Isaacs lost money if Tesla’s stock rose—$3,000 for every dollar increase in the stock price. If Musk really did close a $420-a-share buyout deal, Isaacs would have needed to come up with around $420 for each of those 3,000 shares. So on Wednesday, Isaacs panicked and closed out his short position early by buying Tesla shares at the then-current price of $376.

But Isaacs now believes that Musk’s tweet was false—that Musk doesn’t actually have funding secured. And if that’s true, he argues, then Musk violated US securities laws, which prohibit a CEO from spreading false or misleading information about a company in order to manipulate its stock price.

Hexbyte – Tech News – Ars Technica | “Short position” explosion?

Isaacs argues that that’s exactly what Musk was trying to do with his tweet.

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