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Why Investors Are Suing Elon Musk Over His Tesla Tweets

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After Elon Musk had tweeted that he has secured some funding to make the company private, he found himself on a receiving end of lawsuits.

The Tesla Inc. Chief Executive was sued by investors over raging share price swings and his tweet about taking the company private at $420 a share. The Securities and Exchange Commission also investigated his statement that he has already found funding to back his move.

The Controversial Tweet

Bloomberg reported that a company shareholder filed a securities fraud class-action lawsuit at San Francisco Federal court o Aug 10. According to the investor, the businessman's tweet was misleading, only aimed to increase shares and screw over the short sellers that are betting against Tesla.

Only minutes after the Tesla CEO's tweet, the company's stock massively increased by 11 percent to nearly $380, and then abruptly dropped 7 percent. Last Friday, the stock was up at $355.49 a share.

The Reason Behind The Lawsuit

One complaint was filed by stock trader Kalman Isaacs, also a short seller. According to Isaacs, Musk's tweets constitutes fraud.

He also claimed that it defied federal security laws forbidding CEOs from divulging false information to manipulate the stock price. During Musk's tweet, the stock trader was short at least 3,000 shares of the company's stock.

This indicates that before Musk tweeted, Isaacs borrowed the company's shares and sold them, thinking that its price would go down. He would be able to purchase them once more at a discount. This move would have made him earn money.

On the other hand, if Tesla's stock went up, he would lose a staggering $3,000 per dollar increase. If it is true that the famous multinational corporation closed to a $420 deal per share, Isaacs would have to come up with the money for each of his 3,000 shares. On Aug. 9, he purchased the Tesla shares at its $376 price.

However, Isaacs decided that Musk's tweets were lies and that he has not secured the funding that he tweeted about. Tesla becoming a private company would constitute an $82 billion deal.

Furthermore, Isaacs is not the only shareholder who has filed a lawsuit. The complaints have all been collected and filed to be heard by a single judge.

The CEO has stated in a board meeting that it would occur without adding more details. Until now, people still do not have a clue where the money would come from.

If the CEO will fail to prove that he has secured funding, he will be forced to pay reparation for the lost money of the shareholders.

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