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Lawsuits filed against Tesla Inc. co-founder and CEO Elon Musk and Tesla by stock investors days after his surprise announcement via Twitter that he was considering bringing his company private may be the first class-action securities lawsuits based on disclosures made through social media.
Two of the lawsuits were filed Aug. 10. One was filed by William Chamberlain against Palo Alto, California-based Tesla and Mr. Musk in U.S. District Court in Oakland, California, while a second was filed in San Francisco against the same defendants by Kalman Isaacs, according to Kalman Isaacs v. Elon Musk and Tesla Inc. and William Chamberlain v. Tesla Inc. and Elon Musk. At least two other similar lawsuits were later filed in federal courts in San Francisco and Oakland.
The Isaacs litigation, which was filed on behalf of shareholders who bought Tesla stock on Aug. 7-8, charges Ms. Musk has used his written statements “as a weapon against short sellers of Tesla shares.”
Short sellers make money when stock prices decline. There has been speculation that Mr. Musk’s tweet was aimed at undermining short sellers.
The more traditional Chamberlain lawsuit, which was filed on behalf of those who bought the stock Aug. 7-10, said that since Mr. Musk’s initial tweet where he said he was considering taking Tesla private and that funding was secured, “he has offered no evidence to back up the statement.”
Joseph P. Monteleone, a partner with Weber Gallagher Simpson Stapleton Fires & Newby L.L.P. in Bedminster, New Jersey, said that as in any other securities litigation, “There’ll be attempts to get a dismissal and then, if dismissal is not successful, there’ll probably be some attempt to get a mediated settlement.”
Because the time frame within the litigation’s focus is so short, “I don’t know how many shares are at issue,” he added.
The tweet-related problems created by Tesla Inc. co-founder and CEO Elon Musk, which include a Securities and Exchange Commission investigation, illustrates the importance of firms developing a social media policy, directors and officers liability experts say.