Class-Action Lawsuit Filed Against Tesla After Elon Musk's Tweet

Musk has claimed that the funding needed to take Tesla private has been secured, with sources saying it could come from Saudi Arabia's sovereign wealth fund, which recently bought a 3 percent to 5 percent stake in the company. Instead, it's the tweet's final two words, "funding secured", that could create problems. The remark set off a frenzy of trading in Tesla shares, even as investors were struggling to discern whether the tweet was legitimate and what precisely it meant.

The scribe also reached out to individuals close to 16 tech and financial institutions and they said that they were not aware of any pre-arranged funding for this transactions.

Isaacs is seeking approval to become the lead plaintiff in a class-action lawsuit representing all Tesla shareholders who traded after Musk's tweet on Tuesday or at any time on Wednesday.

Isaacs accused Musk of making false and misleading statements to inflate Tesla's stock price, and that Tesla "doubled-down" on those statements by failing to correct them.

Musk would need over $50 billion, counting his already owned 20 percent stake, to take Tesla (NASDAQ:TSLA) private.

However, a source who is familiar with PIF's strategy said it was not now getting involved in any funding process for Tesla's take-private deal.

"'Funding secured' is a very strong term, and it has legal consequences", Pitt said. Speculation had been swirling around Tesla and Musk's disclosures amid the yearlong struggle the company had ramping up production of the Model 3 sedan, with Musk fielding a question on the company's latest earnings call about whether a notice from a regulator was keeping him from being able to raise more capital. The company is based in nearby Palo Alto, California.

But Isaacs said Tesla's and Musk's conduct caused the volatility that cost short-sellers hundreds of millions of dollars from having to cover their short positions, and caused all Tesla securities purchasers to pay artificially inflated prices. "It looks like the large short sellers are holding onto their positions", and increasing the positions at the stock's higher level, he said. And ultimately, any punishment Musk or Tesla would receive would depend on the amount and strength of evidence the SEC found.

Elon Musk wasn't joking.

For Musk to be criminally prosecuted and sent to prison, wrongdoing would have to be proved beyond a reasonable doubt.

Since rising sharply in the immediate aftermath of Musk's statement, Tesla stock has largely given back its gains, closing on Friday at $355.49.

  • Eleanor Harrison