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Sunday, December 3, 2023

Tesla faces investor lawsuit over Musk tweets on 10% stock sales

Tesla Inc (TSLA.O) was hit by a lawsuit over CEO Elon Musk's social media posts including his Twitter poll on stock sales that pulled down its stock prices. He has since sold nearly $14 billion worth of shares so far.

Tesla investor David Wagner called for access to internal documents to investigate whether Tesla and Musk violated an agreement with the US securities regulator and its board members failed to adhere to their fiduciary duties.

In 2018, Musk settled a lawsuit by the Securities and Exchange Commission over his tweet on taking the company private, agreeing to have the company’s lawyers pre-approve tweets with material information about the company.

Tesla shares, which had hovered near record-highs, lost their value by about a quarter after Musk said on November 6 he would sell 10% of his stake if Twitter users agreed. He has since sold nearly $14 billion worth of shares so far.

Read more: Tesla to accept dogecoin as payment for merchandise, says Musk

The lawsuit, filed with the Delaware Court of Chancery on Thursday, seeks to obtain records and books related to his tweets, including documents to identify whether the stock sales tweets were reviewed or pre-approved in advance.

In March, another shareholder sued Musk and its board in March, accusing him of violating his 2018 settlement with the SEC and exposing shareholders to billions of dollars of losses.

Tesla is facing many lawsuits

Tesla and CEO Elon Musk are facing dozens of lawsuits and investigations, according to public filings.

The costs of defense and settlements burden the car maker financially at a time when Tesla is already cutting headcount, closing stores and delaying loan repayments. No doubt Tesla would rather spend its money to improve its service, set up manufacturing lines to make the Model Y (its forthcoming compact SUV), or build out its Shanghai Gigafactory.

Among Tesla’s most recent legal woes, the Securities and Exchange Commission has filed a motion to hold Musk in contempt of court. The financial regulators argue that Musk violated the agreement they finalized with him and Tesla in October 2018 requiring the CEO to submit his tweets for review by the company’s in-house counsel if they contained material business information and could potentially affect the company’s stock price.

Read more: Tesla sued by second female worker over sexual harassment case

Musk is represented in this matter by John C. Hueston, formerly the lead prosecutor for the federal trial of Enron’s Jeffrey Skilling.

Beyond the contempt case, here are some of the other cases and investigations Tesla and Musk are facing that could most impact the company.


Reuters with additional input by GVS