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Businesses The Courts

Short-Sellers Sue Tesla After Musk's 'Going Private' Tweets (bbc.co.uk) 383

An anonymous reader quotes the BBC: Elon Musk's bombshell announcement that he is thinking of taking the electric car company Tesla private has landed him a lawsuit from unhappy investors.... His comments caused the share price to shoot up 11% to nearly $380, though it has since fallen back. Short-sellers, who bet on share price falls, allege he misled the market....

Short-sellers, who make a profit by borrowing shares, selling them and then buying them back at an expected lower price, claim to have lost millions thanks to Mr Musk's comments. Plaintiff Kalman Isaacs alleges the announcement was aimed at "completely decimating" short-sellers. His lawsuit, and another filed by William Chamberlain, accuse Mr Musk and Tesla of violating federal securities laws and artificially inflating Tesla's share price. Neither Mr Musk nor Tesla have commented on the lawsuit, which was filed in a federal court in San Francisco.

Tesla "is holding early discussions with banks about the feasibility and structure of a possible deal," Bloomberg reported yesterday -- and Ars Technica points out that if Mr. Isaacs had simply kept his short positions open through Friday, "he would be at least $60,000 richer."

But Isaacs' hopes to be the lead plaintiff for a class-action lawsuit "representing all Tesla shareholders who traded after Musk's tweet on Tuesday or at any time on Wednesday."
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Short-Sellers Sue Tesla After Musk's 'Going Private' Tweets

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  • aww poor baby (Score:2, Interesting)

    by Anonymous Coward

    i made a investment and it didn't pan out. guess i'd better sue

    • Re:aww poor baby (Score:4, Insightful)

      by Rei ( 128717 ) on Saturday August 11, 2018 @02:49PM (#57107978) Homepage

      But, Musk should have warned them that there was major news upcoming that could have a serious negative impact on short sellers. You know, like he's been doing pretty much every bloody week recently.

      The short argument to the SEC is basically, "Yeah, he warned us, but we didn't believe him! Also, he didn't tell us the exact date and time he would be announcing the news that would have a negative impact on us, or the exact details of what he was going to announce that was going to hurt short sellers. Also: we don't believe him now either!"

      • by saloomy ( 2817221 ) on Saturday August 11, 2018 @02:53PM (#57108008)

        Time for some entertainment: Link to Hitler Spoof [youtu.be].

      • by Anonymous Coward

        Sorry, but unlike you the SEC is taking this very seriously, and many who understand the applicable laws are wondering why Musk made such a blunder. He publicly announce that funding was secured at a certain price point. If that turns out to be false then he could be prosecuted and also these lawsuits could be shown to have merit.

        I know you are a super Musk lover, but at some point you have to agree he likely screwed up royally this time. Do you really think such a CEO should do such a thing when his own bo

        • Re: (Score:3, Insightful)

          by Rei ( 128717 )

          "GM's CEO announced that the company produced 13000 cars this week" "Interesting news, Sandra, although if he's lying he'll go to jail." -- said nobody ever.

          Here's your logic train:

          1) Musk announced news
          2) You don't believe the news
          3) Giant preemptive scandal without taking any time to substantiate your disbelief.

          Meanwhile, preview of the future: here's how it's actually going to play out:

          SEC: "Can we see your funding list?"
          Musk: "Here you go."
          SEC: "Huh, never would have thought that X would be in for that

          • by Rei ( 128717 )

            *** She

        • by mykepredko ( 40154 ) on Saturday August 11, 2018 @03:07PM (#57108090) Homepage

          I've given up trying to keep track of how many times I've seen the Musk haters say "Musk has screwed the pooch this time", "Musk has yet again promised and not delivered" or "Musk doesn't know what he's talking about" only to be proven wrong. If you're so sure that Musk does not have have a plan with investors lined up and has made the announcement without talking to tax attorneys and has placed himself in legal jeopardy could you put your money where your mouth is?

        • Re: (Score:2, Insightful)

          by WindBourne ( 631190 )
          why has he screwed up? If he actually got the funding, likely from Saudi Arabia, then everything that he said was accurate.
          As such, the SEC can not touch him.

          And I suspect that the board knew EVERYTHING about this.
          • Re: aww poor baby (Score:2, Informative)

            by Anonymous Coward

            Yeah, about Saudi Arabia

            https://www.reuters.com/article/us-tesla-musk-saudi-exclusive/exclusive-saudi-arabias-pif-has-shown-no-interest-in-bankrolling-tesla-buyout-idUSKBN1KW0FA

        • All short sellers should go and take a hike
          and piss off. They only serve themselves.
          In China they would be executed.

      • they're basically our ruling class. Things you wouldn't think in a million years have laws do. And those laws have teeth and they are enforced. It's good to be the king.
      • by mwvdlee ( 775178 )

        I think privately informing investors (though short-selling is more of a negative investment in a company) before releasing public information that impacts the stock price would amount to investment fraud.

        This is pretty much the definition of "butt-hurt".

        • Shorting isn't an investment at all, it is just a "position" on an investment. The only person in that situation who is protected by securities law is the person going long; that's the actual investor that is involved. And they're considered to be harmed by the stock price going down, if it goes up that doesn't hurt them at all.

          It is like worrying if gamblers can sue a sports team. No, they can't. Assuming that "case dismissed" counts as "can't," anyways. Sponsors and team creditors have a much higher likel

      • Short sellers are not stockholders, they're position-holders. No, they're not due any information.

        This lawsuit was designed to trick people like you. On the internet. To try to push the stock price down.

        Securities law protects shareholders, not position-holders. It also only protects them from harm. That's a one-way protection; you're protected more from lies that cause the price to go down than lies that cause the price to go up.

        The cases where people got in trouble when they lied and the price went up ten

      • uuhhhh, I'm pretty sure he did warn them - in June.

        Musk: They have about three weeks before their short position explodes

        As usual, a little off in the timing, but his record for making things happen is actually very good if you simply disregard the fact that he always uses the stretch goal time he is pushing for instead of something realistic - a characteristic I believe is the key to success.

        In addition, this could be considered a very nice warning that they wouldn't get from other companies. They should be very thankful for this early, unclear disclosure. If he warned of ma

    • Short selling is not an investment. For the most part, almost all forms of trading is not investing. Investing means you're taking an invested interest in the company. Loaning a company money is investing in that company. Buying shares from an offering is investing in the company.

      Short selling is betting against the company. It's pretty much an anti-investment.

      When you short sell, you're selling shares you don't even own and then delivering those shares after it fails. You are never really an owner of the s
    • i made a investment and it didn't pan out. guess i'd better sue

      Short selling by itself is not an investment, it is just a gamble. Short selling as a hedging mechanism is investing and no one doing that with Tesla stock was hurt in any way.

  • by serviscope_minor ( 664417 ) on Saturday August 11, 2018 @02:43PM (#57107958) Journal

    Short sellers pissed off that the share price went up? let me see if I an find something small enough to hold the sympathy I feel for them.

    • by JoeyRox ( 2711699 ) on Saturday August 11, 2018 @02:51PM (#57107990)
      Short sellers aren't priced that the price went up - they're pissed that it went up from alleged market manipulation by its CEO, the legality of which will ultimately be decided by the SEC. If the SEC finds that Musk did not have funding for the takeover secured as he claimed in his tweet then he's in for a world of legal hurt.
      • Short sellers aren't priced that the price went up - they're pissed that it went up from alleged market manipulation by its CEO,

        I have some fine land in Florida to sell you. It's just a bit wet.

        Of course short sellers are pissed the price went up. Short sellers haven't cared about Musk's earlier tweets that depressed the stock price. Short sellers also engage in market manipulation. All the short sellers care about is profit -- they don't care how or why.

        What's different is that Musk gave them an opening to

        • Short sellers also engage in market manipulation.

          IANAL but I suspect it's considered a little bit more serious when it's an insider - like the CEO - doing it.

      • Short sellers aren't priced that the price went up - they're...

        ... priced that they lost so much money gambling, that they're going to be pricing lots of stuff that they used to just buy without pricing. And they've lost so much money that many of the things they're not even used to pricing now seem priceless. They're priced that they're priced out of their pricey prices.

    • Short sellers pissed off that the share price went up? let me see if I an find something small enough to hold the sympathy I feel for them.

      Some of the longs might get pissed as well. By tweeting such a thing, future investors may not be willing to pay as much knowing Musk may limit their upside with a buyout. Tweeting something that causes an SEC investigation isn't good for the company as whole.

      • That was my first thought as an investor. My hope is for a short squeeze, which could result in a $20B injection, which can send the price far higher than $420. I'm not upset though because I'm not a fucking litigious snowflake like the idiot shorts.

  • by Fly Swatter ( 30498 ) on Saturday August 11, 2018 @02:49PM (#57107974) Homepage
    I would be laughed out of town.
    • As long as they got your money, they would be happy to keep you around.
    • by OzPeter ( 195038 )

      I would be laughed out of town.

      Unless you saw proof that they deliberately stacked the deck against you personally, and not Joe Schmoe sitting next to you.

      (Which is the stance of the sort sellers - Not that I know if they have a valid point or not .. that's up to the relevant authorities)

  • I'm not experienced in the stock market so I may need an aid. Pull out that guarantee from your pocket and let's go over the language together...

  • Lone Skum (Score:5, Interesting)

    by PopeRatzo ( 965947 ) on Saturday August 11, 2018 @02:56PM (#57108022) Journal

    This is a trick that Elon Musk can only pull once. If he doesn't take the company private, his move will be seen for what it was, a desperate attempt to shore up stock price by putting out the rumor that he was "thinking about" doing something.

    If the company doesn't go private, those short-sellers will have their revenge. Consider: If you were thinking about taking a company private (which means buying up stock), would you make an announcement that will raise the price of the stock so you have to pay more?

    Musk is trying to buy time for Tesla. That's cool, but he's skirting a fine line. It'll be interesting to see how this plays out, but I assure you there are people at the SEC looking into it.

    • Re: (Score:3, Insightful)

      by WindBourne ( 631190 )
      First off, he announced the price that he thought was fair, which was 420. That was above it, so, he is legally fine. In addition, I would assume that he had lined up money prior to that announcement, like he said. Assuming that he did, then EVERYTHING was legal and above board.

      The real problem is when you have ppl like Chanos, or his good buddy, David Tamberrino [tipranks.com], manipulating the stock with loads of lies, well, they are likely the ones that will be getting into trouble with the SEC.

      What is really bot
  • Ha! Ha! (Score:3, Insightful)

    by mykepredko ( 40154 ) on Saturday August 11, 2018 @03:00PM (#57108040) Homepage

    The Tesla short sellers have been doing everything they can including fake announcements, generating rumours and harassing employees, suppliers and investors in order to hurt the share price of Tesla are now upset that Mr. Musk has said enough is enough?

  • by hwihyw ( 4763935 ) on Saturday August 11, 2018 @03:00PM (#57108042)

    Before everyone starts attacking short sellers, they actually provide checks and balances against bubbles and fraud.

    https://www.investopedia.com/a... [investopedia.com]

    https://money.usnews.com/inves... [usnews.com]

  • Just can't stop thinking about how this played out... Musk: "I've been thinking about taking Tesla private" (yeah, if I could afford it.) andd... the stock price jumps for a bit and the short-sellers get thrown off. Ya know, every now and then we get dealt a really kick-ass hand and raise. Then that fool over there raises you and you're like "Yes!" next thing ya know you're all in. There was a reason they kept up with ya and you're left like... wtf Seriously? When you gamble even with the best hand you ma
    • When you gamble even with the best hand you may just end up splitting the pot...

      No. If you have the best hand, you have the best hand. There is no splitting.
      At that point the gambling is mostly gone, too. You'd best focus on maximizing investment.

  • by RyanFenton ( 230700 ) on Saturday August 11, 2018 @03:05PM (#57108076)

    There's this big obvious income source coming for the company, an expensive factory being made that will make the next technology that everyone wants.

    Without a disinformation campaign, folks would see that income source, and trade to match expected values, tempered for obvious risks, like failure rates and competition.

    So, how do you turn this big, obvious market event in your favor?

    You spread as much garbage about the company as you can. Headlines - headlines everywhere about everything you can get anyone to believe, that the company is fated for a giant fall. Get those stocks to as low a value as you can - then buy them, just before the actual numbers come back about a factory doing what a factory does.

    So... the guy in charge of said factory decides to make the thing private, to prevent your strategy from working! Aw! All that work trashing the company, and you can't benefit from it! Such a loss of potential!

    That's the market, as it is currently allowed to function. Folks using every piece of information as pivots to fool other investors.

    The same thing is happening with Square Enix - about to release like 5 major games after working several years on each, and just releasing another major game now. What do the stories say about this, just before?

    https://wccftech.com/square-en... [wccftech.com]

    That's right - they emphasize the losses from making those games. They want those values low, low, low.

    It's kind of a stupid way to value things, isn't it?

    Ryan Fenton

    • There's nothing low about Tesla's valuation. It's highly inflated based on hopes that they'll eventually be a leader in a rapid growth market. I think short sellers are attracted because it's not clear Tesla will be able to achieve all the things needed to become profitable enough to justify the price. In other words, there's still much for Tesla to accomplish and people are divided about how profitable they'll eventually become.
  • by JoeyRox ( 2711699 ) on Saturday August 11, 2018 @03:09PM (#57108104)
    Musk has to keep the price above $360/share, otherwise he has to pay back bondholders $960M in cash by March 1st, 2019. Based on its current cash position and expected expenditures Tesla wont have the funds to pay bondholders back.

    https://seekingalpha.com/article/4196101-elon-musk-desperately-needs-tesla-stock-stay-360 [seekingalpha.com]
    • by GrimSavant ( 5251917 ) on Sunday August 12, 2018 @02:02AM (#57110080)
      That article is wrong based on the underlying linked SEC report on on the notes [sec.gov], either the author didn't read it properly or didn't expect their readers to read it properly. The note holder has the option to convert to stock until a couple days before maturity; the base conversion rate is 2.7788 per $1000 principal (which translates to about $360), but the conversion rate is increased depending upon the stock price given in table 9.03(e), with more shares given for stock prices at the cutoff of $252.54 per share. It gives the same breakeven point on the March 1, 2019 at the prices per share between $252.54 and $359.87.

      The timing and reporting issues are listed in 9.01(b), for the listed major company changes (like liquidation) Tesla has to give notification at least 30 trading days in advance.

      Frankly, that article set off by BS alarms causing me to look at the supporting material, since it sounded like this conversion was structured as a bonus to lenders if the stock price went really high, not as a way to dodge unforeseen financing trouble years ahead of time. The note holder captures upside to stock prices above $360 from the conversion. Presumably they structured it this way to improve how much money Tesla got up front for selling the notes in the 2013 or 2014 timeframe, and they were willing to trade away some of the upside if the price per share went above $360.
    • Very few days over the past year has TSLA been above $360, so the way you have said it, it sounds like you are full of shit.

      Are you sure you didnt mean to say something different? If not, why didnt you say what you meant?

      Either very sloppy or very dishonest. Does it matter which you are?
  • Trading was always sort of gamble, any deterministic outcomes consistently are prosecuted as "insider trading". Lots of silly stuff affect stock prices and we can't expect people like Musk to be constantly self-conscious about affecting stock price in any way. I don't think forbidding Musk to share his plan to go private is in any way consistent with rule of law.
  • In Musk's position, I would want to depose the short-sellers. Especially the ones behind a lot of the artificial bad publicity, and their business partners, etc. And now Musk gets to do that, without actually having to bring any suit against the shorts. At least, not yet. Once he has their depositions, maybe. Watch them attempt to avoid getting on the stand.

    • Nothing like getting Bre'r Bear to throw you in the Briar Patch, lol.

      "No! Please don't take me to court and make me prove you're lying publicly!

      "Please No!" :)

      Lol.

      I'm sure this won't go to court, as this is the short sellers trying to make it go back down before the contracts expire, if they can.

  • Short sellers need to man up and own their bad financial decisions. When I make a bad investment, I don't start looking for people to sue.

    If you can't handle the stress of losing a short sale, stay the fuck away.

  • Hahahaha... I think in modern regulations.. if the CEO and BoD of a company want to make import changes to their company, they need to get permissions from traders.... if it may cost the traders money, it will most likely be rejected.
  • and when it turns out they don't, they sue. Gamblers deserve their fate. They already gambled when they bought stock, then they gambled again by short selling. No sympathy.

  • Not in Tesla. They entered into no contractual or ownership position with Tesla/Musk and therefore have no recourse. They did enter into contracts with third parties willing to loan their Tesla shares. But unless these third parties had any influence on or inside knowledge of Musk's buy-back plans, they did nothing wrong either.

    Play stupid games, win stupid prizes.

  • If TSLA goes private, short sellers are going to be providing $20B of funding to help TSLA go private. All their positions will be closed and they won't be able to play the borrower's game anymore. It's odd that none of the stories trying to figure out where the money will come from seems to note this.

  • Unhappy Investors? (Score:5, Insightful)

    by kenwd0elq ( 985465 ) <kenwd0elq@engineer.com> on Saturday August 11, 2018 @04:48PM (#57108562)

    "Unhappy investors"? I'm not at all sure that short-sellers qualify as "investors".

    "Pump and dump" tactics - buying a cheap stock, talking it up with false positive news stories and then selling it at a profit - are illegal. The reverse - selling a stock short and then making up lies about the company - should be equally illegal.

    • by bidule ( 173941 )

      "Pump and dump": all the money is upfront, you lose nothing more than what you invested. You might gain 10x what you invested.
      Short-selling: you can lose 2-3 times what you invested.

      One carries more risk than the other, which is why they're not equally illegal.

  • by guacamole ( 24270 ) on Saturday August 11, 2018 @06:55PM (#57109010)

    Prostitutes sue wealthy customers for the loss of virginity.

  • by GreatDrok ( 684119 ) on Sunday August 12, 2018 @12:09AM (#57109926) Journal

    The shorts have borrowed shares and sold them. Their problem is they have to buy them back to return them and they were hoping the price would go down so they could pocket the difference. This isn't investment, it is parasitism. They gambled and the share price hasn't gone down, that's life.

    Share prices rise and fall on all sorts of information and I don't think Musk would have said what he did without having the finance secured and his tweet was to alert all of his actual investors of what he was planning. Shorts aren't in on this, they don't have any shares.

  • good riddance (Score:4, Informative)

    by Tom ( 822 ) on Sunday August 12, 2018 @03:36AM (#57110214) Homepage Journal

    Short sellers, though in principle the practice is legitimate, are typically a crowd of get-rich-fast schemers. The primary reason they are short sellers is not that they honestly believe a company will go down or is overvalued, but that prices almost always go down faster than up. If you want to make money quickly, you go short. If you want to invest and make money in the long run, you go long. Wait, it's even called like that, what a surprise!

    Lots and lots of them are in it for short-term profit which is why they have stop-loss orders in place to bail them out if the market goes the other way. And they are often in with leverage, so that they make 10 bucks on every point that the price moves. Which, of course, is also true if the price moves the other way. So their stop-loss orders are often much closer to the current price than it would be for investors who are quite ok with having some up and down movement, because they are looking at the company behind the price and don't care about today or tomorrow, they care about next quarter or next year.

    So short sellers are a) make-money-fast guys and b) volatile to price changes going against them. With that, yes they lost millions, I easily believe that, because they probably bought at $350, set a stop-loss order at $360 and were leveraged 10:1 so that the $10 upwards swing lost them $100 per stock.

    I so much hope the case finds a judge who understands the stock market and flat out tells them to not play in the kitchen if they can't stand the heat.

    They would have been absolutely fine if they would not play with so much leverage that they need tight stop-losses.

  • by ayesnymous ( 3665205 ) on Sunday August 12, 2018 @04:19AM (#57110318)
    The shorts weren't worse off than before the tweet... unless they were short so much that they got a margin call before the price came back down, in which case they deserve to lose for having such a massive position.

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