Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 1 of 25
`
`BROWNE GEORGE ROSS LLP
`Eric M. George (State Bar No. 166403)
`egeorge@bgrfirm.com
`Carl Alan Roth (State Bar No. 151517)
`croth@bgrfirm.com
`2121 Avenue of the Stars, Suite 2800
`Los Angeles, California 90067
`Telephone: (310) 274-7100
`Facsimile: (310) 275-5697
`
`KELLER LENKNER LLC
`Ashley C. Keller
`ack@kellerlenkner.com
`150 N. Riverside Plaza, Suite 2570
`Chicago, IL 60606
`Telephone: (312) 741-5222
`
`KELLER LENKNER LLC
`U. Seth Ottensoser
`so@kellerlenkner.com
`1330 Avenue of the Americas
`New York, NY 10019
`Telephone: (212) 653-9715
`
`Attorneys for Plaintiff Kalman Isaacs,
`individually and on behalf of all others similarly
`situated
`
`UNITED STATES DISTRICT COURT
`
`NORTHERN DISTRICT OF CALIFORNIA, SAN FRANCISCO DIVISION
`
`KALMAN ISAACS, individually and on
`behalf of all others similarly situated,
`
`Plaintiff,
`
`vs.
`
`Case No.
`
`CLASS ACTION COMPLAINT
`
`JURY TRIAL DEMANDED
`
`ELON MUSK and TESLA, INC.,
`
`Trial Date: None Set
`
`Defendants.
`
`1098965.1
`
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 2 of 25
`
`Plaintiff Kalman Isaacs, individually and on behalf of all other persons similarly situated,
`
`by his undersigned attorneys, for his complaint against defendants, alleges the following based
`
`upon personal knowledge as to himself and his own acts, and information and belief as to all other
`
`matters, based upon, inter alia, the investigation conducted by and through his attorneys, which
`
`included, among other things, a review of the defendants’ public documents, and announcements
`
`made by defendants, United States Securities and Exchange Commission (“SEC”) filings, wire
`
`and press releases published by and regarding defendant Tesla, Inc. (“Tesla” or the “Company”),
`
`news articles about the Company, and information readily obtainable on the Internet. Plaintiff
`
`believes that substantial evidentiary support will exist for the allegations set forth herein after a
`
`reasonable opportunity for discovery.
`
`NATURE OF THE ACTION AND RELEVANT BACKGROUND
`
`1.
`
`This is a federal securities class action on behalf of a class consisting of all persons
`
`other than Defendants (defined herein) who purchased securities of Tesla, Inc. (“Tesla”) after
`
`12:48pm eastern standard time on August 7, 2018 through and including August 8, 2018 (the
`
`“Class Period”), seeking to recover damages caused by Defendants’ violations of the federal
`
`securities laws and to pursue remedies under the Securities Exchange Act of 1934 (the “Exchange
`
`Act”). As a result of Defendants’ materially false and misleading statements, as well as their
`
`market manipulation, Tesla securities purchasers were injured to the tune of hundreds of millions
`
`of dollars.
`
`2.
`
`Tesla designs, develops, manufactures and sells high-performance, fully electric
`
`vehicles and designs, manufactures, installs, and sells solar energy generation and energy storage
`
`products.
`
`3.
`
`Defendant Musk is the Chief Executive Officer and Chairman of the Company, and
`
`owns or controls approximately 22% of the Company’s shares. Defendant Musk often uses his
`
`Twitter account to issue statements on behalf of and regarding Tesla. These Twitter statements are
`
`referred to as “Tweets,” and Defendant Musk has used them as a weapon against short sellers of
`
`Tesla shares. By way of background, in a short sale, an investor borrows shares and immediately
`
`sells them on the open market hoping that he or she can purchase the shares later at a lower price,
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`1098965.1
`
`-1-
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 3 of 25
`
`return them to the lender and pocket the difference. Short sellers profit when the company’s
`
`shares go down and incur a loss when shares go up. According to an August 2, 2018, article in
`
`The Wall Street Journal entitled For Tesla’s Elon Musk, Twitter Is Sword Against Short Sellers,
`
`“Mr. Musk has been engaged for some time in a digital cat and mouse fight with negative
`
`investors on his company’s stock, and so far he is winning. His extraordinary use of Twitter to
`
`battle short sellers has often been followed by a jump in Tesla’s stock price, hurting shorts in the
`
`process.” Among other things, on June 17, 2018, (a Sunday), Musk tweeted that Tesla short-
`
`sellers had “about three weeks before their short position explodes.” Tesla’s stock rose 4% the
`
`first day of trading after Musk’s weekend tweet.
`
`4.
`
`As described herein, Defendants embarked on a scheme and course of conduct to
`
`artificially manipulate the price of Tesla stock to completely decimate the Company’s short-sellers
`
`(and, on the way, injured all purchasers of Tesla securities). This started with a Musk Tweet at
`
`12:48 p.m. on August 7 stating: "Am considering taking Tesla private at $420. Funding secured."
`
`5.
`
`In the succeeding several hours, Defendant Musk issued additional Tweets
`
`regarding the supposedly secure going-private transaction (the “Going Private Transaction”). For
`
`example, at 1:40pm, Musk Tweeted “I don’t have a controlling vote now & wouldn’t expect any
`
`shareholder to have one if we go private. I won’t be selling in either scenario.”
`
`6.
`
`At 2:00pm, Musk Tweeted “My hope is *all* current investors remain with Tesla
`
`even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla.
`
`Already do this with Fidelity’s SpaceX investment.” This Tweet was in response to @Gfilche
`
`who had Tweeted “Noooooo!!!!! Still processing what this means, but would be sad to see all the
`
`investors who’ve been w/ $TSLA miss out on the upside over the next few years. Although if this
`
`helps the mission and Elon thinks it’s smart, I understand and fully support.”
`
`7.
`
`At 2:07pm, Defendant Musk Tweeted: “Absolutely. Am super appreciative of
`
`Tesla shareholders. Will ensure their prosperity in any scenario.” This was in response to
`
`@heydave7, who had Tweeted “Or if you do take Tesla private, please have a provision for retail
`
`investors who have held Tesla shares prior to Dec 31, 2016 that those shares will be converted into
`
`private shares in the new private company. This would be only fair and the right thing to do.”
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`1098965.1
`
`-2-
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 4 of 25
`
`8.
`
`At 2:13pm, Musk Tweeted: “Shareholders could either to sell [sic] at 420 or hold
`
`shares & go private.”
`
`9.
`
`At 2:14pm, he reassured shareholders by Tweeting that there would be “no change”
`
`to his status as CEO if the proposed deal was successful.
`
`10.
`
`At 3:07pm, Defendant Musk Tweeted: “Def no forced sales. Hope all shareholders
`
`remain. Will be way smoother & less disruptive as a private company. Ends negative propaganda
`
`from shorts.” This was in response to a Tweet from @MindFieldMusic stating that “At 1st I was
`
`upset bc I thought this would be a forced buyout. But if average folk like myself are allowed to
`
`reside with the garden walls along with you, then . . . Yes please.”
`
`11.
`
`These series of tweets sparked a trading frenzy that drove Tesla shares to an
`
`intraday high of $387.46 — $45.47 above the previous day’s closing price. Trading volume
`
`spiked to 30 million shares (compared to an average of 8 million), representing over $11 billion of
`
`purchases in the open market. Many Tesla short sellers covered their positions at artificially high
`
`prices in the wake of Musk’s tweets. In addition to the short-sellers, Defendants have injured all
`
`purchasers of Tesla securities during the Class Period who also purchased shares at artificially
`
`inflated prices.
`
`12.
`
`At approximately 3:30pm, Tesla released a statement via its corporate blog titled
`
`”Taking Tesla Private.” It contained an email from Musk sent to Tesla employees. That email
`
`stated:
`
`Earlier today, I announced that I’m considering taking Tesla private at a price of
`$420/share. I wanted to let you know my rationale for this, and why I think this is
`the best path forward.
`
`First, a final decision has not yet been made, but the reason for doing this is all about
`creating the environment for Tesla to operate best. As a public company, we are
`subject to wild swings in our stock price that can be a major distraction for everyone
`working at Tesla, all of whom are shareholders. Being public also subjects us to the
`quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that
`may be right for a given quarter, but not necessarily right for the long-term. Finally,
`as the most shorted stock in the history of the stock market, being public means that
`there are large numbers of people who have the incentive to attack the company.
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`1098965.1
`
`-3-
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 5 of 25
`
`I fundamentally believe that we are at our best when everyone is focused on
`executing, when we can remain focused on our long-term mission, and when there
`are not perverse incentives for people to try to harm what we’re all trying to achieve.
`
`This is especially true for a company like Tesla that has a long-term, forward-looking
`mission. SpaceX is a perfect example: it is far more operationally efficient, and that
`is largely due to the fact that it is privately held. This is not to say that it will make
`sense for Tesla to be private over the long-term. In the future, once Tesla enters a
`phase of slower, more predictable growth, it will likely make sense to return to the
`public markets.
`
`Here’s what I envision being private would mean for all shareholders, including all
`of our employees.
`
`First, I would like to structure this so that all shareholders have a choice. Either they
`can stay investors in a private Tesla or they can be bought out at $420 per share,
`which is a 20% premium over the stock price following our Q2 earnings call (which
`had already increased by 16%). My hope is for all shareholders to remain, but if they
`prefer to be bought out, then this would enable that to happen at a nice premium.
`
`Second, my intention is for all Tesla employees to remain shareholders of the
`company, just as is the case at SpaceX. If we were to go private, employees would
`still be able to periodically sell their shares and exercise their options. This would
`enable you to still share in the growing value of the company that you have all
`worked so hard to build over time.
`
`Third, the intention is not to merge SpaceX and Tesla. They would continue to have
`separate ownership and governance structures. However, the structure envisioned for
`Tesla is similar in many ways to the SpaceX structure: external shareholders and
`employee shareholders have an opportunity to sell or buy approximately every six
`months.
`
`Finally, this has nothing to do with accumulating control for myself. I own about
`20% of the company now, and I don’t envision that being substantially different after
`any deal is completed.
`
`Basically, I’m trying to accomplish an outcome where Tesla can operate at its best,
`free from as much distraction and short-term thinking as possible, and where there is
`as little change for all of our investors, including all of our employees, as possible.
`
`This proposal to go private would ultimately be finalized through a vote of our
`shareholders. If the process ends the way I expect it will, a private Tesla would
`ultimately be an enormous opportunity for all of us. Either way, the future is very
`bright and we’ll keep fighting to achieve our mission.
`Thanks, Elon
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`1098965.1
`
`-4-
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 6 of 25
`
`13.
`
`Importantly, this statement from Tesla was also materially false and misleading
`
`because it did not correct Defendant Musk’s false and misleading statements that funding had been
`
`secured for the Going Private Transaction. By not correcting Defendant Musk’s
`
`misrepresentations, Tesla doubled-down on Musk’s earlier false and misleading funding
`
`statements, and continued to cause artificial inflation in the price of the Company’s stock.
`
`Additionally, in this statement, Defendant Musk expressly admitted that he is targeting short-
`
`sellers. Musk's frequent complaints about "relentless attacks from short sellers" leaves no doubt
`
`whether or not he was intentionally trying to drive the price of Tesla shares higher, which would
`
`meet the definition of market manipulation and could carry possible criminal penalties.
`
`14.
`
`Finally, at 3:36pm, Musk Tweeted “Investor support is confirmed. Only reason
`
`why this is not certain is that it’s contingent on a shareholder vote.” [Emphasis added.]. This
`
`Tweet was also materially false and misleading, because it affirmed that the transaction was fully
`
`financed and guaranteed so long as shareholders assented. However, Musk did not cast any doubt
`
`on the misstatement of fact that the Going Private Transaction was fully-financed; and he further
`
`misrepresented that other factors could not derail a Going Private Transaction when in reality they
`
`absolutely could. For example, as subsequent developments make plain, the Board of Directors
`
`has not yet approved the Going Private Transaction, and their assent (not just shareholder
`
`approval) is required to facilitate such a transaction. Because Musk did not inform the market that
`
`the deal required Board approval, he further misrepresented the status and the likelihood of the
`
`Going Private Transaction to the market.
`
`15.
`
`Although the trading in Tesla stock was halted for a short period of time during the
`
`afternoon of August 7, 2018, trading resumed at approximately 3:45pm eastern standard time.
`
`16.
`
`On or about August 8, 2018, several Company directors, including Brad Buss,
`
`Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice and James Murdoch,
`
`issued a statement “Last week, Elon opened a discussion with the board about taking the company
`
`private, this included discussion as to how being private could better serve Tesla’s long-term
`
`interests, and also addressed the funding for this to occur. The board has met several times over
`
`the last week and is taking the appropriate next steps to evaluate this.” [Emphasis added.]
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`1098965.1
`
`-5-
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 7 of 25
`
`17.
`
`Importantly, this statement from Tesla’s directors which addressed funding, did not
`
`correct Defendant Musk’s earlier Tweets. Because of Defendants’ affirmative statements and
`
`market manipulation scheme, Tesla’s stock price stayed artificially inflated throughout the day of
`
`August 8, 2018, as well.
`
`18.
`
`For many reasons, it is not possible for Defendant Musk to have secured funding
`
`for the deal. First, it would be hard for Musk to raise the equity and debt financing needed for the
`
`deal (approximately $72 billion) given Tesla is not turning a profit. Indeed, the Company is
`
`currently cash-flow negative. How then could Tesla issue tens of billions of dollars of new debt
`
`when it is cash-flow negative?
`
`19.
`
`If debt cannot be used, another alternative would be finding equity partners. For
`
`example, when Michael Dell took his computer maker private for $24.9 billion in 2013, he
`
`brought in buyout firm Silver Lake that contributed $1.4 billion in equity, raised more than $10
`
`billion in bank debt, and received a $2 billion loan from Microsoft Corp. There is no indication
`
`that Defendant Musk has any such equity financing lined-up.
`
`20.
`
`Indeed, many attempts by founders and top executives to take their companies
`
`private have never come to fruition. For example, in March, Qualcomm Inc. Chairman Paul
`
`Jacobs stepped down from the board to pursue a take-private bid for the U.S. chip maker, which
`
`has a market capitalization of $93 billion. To date, this bid has not materialized. Likewise, U.S.
`
`department store operator Nordstrom Inc.’s attempt to go private also failed earlier this year, after
`
`banks would not provide the necessary financing to the founding family members seeking to put
`
`together the deal. Thus, Musk’s statement that he had secured funding was especially material and
`
`significantly moved the market. Because Musk has not secured financing, and has issued false
`
`and materially misleading information into the market, short sellers of Tesla stock were forced to
`
`cover their positions by purchasing shares at artificially inflated prices after 12:48pm on August 7,
`
`2018. Obviously, all purchasers of Tesla securities were injured as well.
`
`21. Many market commentators have weighed-in on this unprecedented situation.
`
`According to former SEC Chairman Harvey Pitt (in a CNBC interview), Musk “is claiming there
`
`is a specific source of the funding so that had better be true. He has also claimed there is a specific
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`1098965.1
`
`-6-
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 8 of 25
`
`amount available for funding. That has to be true. Otherwise, even if it's not manipulation it
`
`would be fraud, so he's got two potential areas of difficulty right there."
`
`22.
`
`Indeed, Tesla still has not revealed where it is getting the more than $71 billion it
`
`would cost to take the company private. On information and belief, no such financing is yet in
`
`place. Given the size of the deal, which would require multiple banks, according to dealmakers
`
`and analysts, “news of the deal would have leaked had Tesla already held discussions to secure
`
`funding" according to UBS analyst Colin Langan.
`
`23.
`
`An August 10, 2018 article from Bloomberg entitled Tesla Is Said to Seek Wide
`
`Investor Pool For Take-Private Plan puts the lie to Musk’s Tweets that funding was secured.
`
`Indeed, according to the article, Tesla and Musk want to avoid concentrating ownership in a few
`
`large holders and, instead, are “seeking a wide pool of investors.” According to the article, “the
`
`billionaire founder would prefer to amass a group of investors who could each contribute part of
`
`the funds because he wants to avoid having one or two large new stakeholders in the company.” If
`
`Musk is still looking to amass a group of investors, he certainly has not secured funding as touted
`
`in his false and misleading Tweets.
`
`24.
`
`According to an August 8, 2018 article in The Wall Street Journal (that appeared
`
`after trading for the day was closed), securities regulators have inquired with Tesla about
`
`Defendant Musk’s Tweets. In this regard, The Securities and Exchange Commission has asked
`
`whether Defendant Musk’s unusual announcement on Tuesday was “factual.” The regulator also
`
`asked Tesla about why the disclosure was made on Twitter rather than in a regulatory filing, and
`
`whether the Company “believes the announcement.” According to the The Wall Street Journal
`
`article, Musk “could be in trouble if regulators develop evidence that he made a statement only
`
`intending to goose his company’s stock price.”
`
`JURISDICTION AND VENUE
`
`25.
`
`The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of
`
`the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule l0b-5 promulgated thereunder by the
`
`SEC, 17 C.F.R § 240.10b-5.
`
`26.
`
`This Court has jurisdiction over the subject matter of this action pursuant to 28
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`1098965.1
`
`-7-
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 9 of 25
`
`U.S.C. §§ 1331 and 1337, and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.
`
`27.
`
`Venue is proper in this District pursuant to Section 27 of the Exchange Act, and 28
`
`U.S.C. § 1391(b). Tesla is located in this District and its shares are traded in this District and
`
`many of the acts and practices complained of occurred in substantial part herein.
`
`28.
`
`In connection with the acts alleged in this complaint, Defendants, directly or
`
`indirectly, used the means and instrumentalities of interstate commerce, including, but not limited
`
`to, the mails, interstate telephone communications, and the facilities of the national securities
`
`markets.
`
`PARTIES
`
`29.
`
`As reflected in the accompanying PSLRA certification, Plaintiff purchased Tesla
`
`securities on August 8, 2018 and was damaged thereby.
`
`30.
`
`Defendant Tesla is a Delaware corporation maintaining its principal place of
`
`business at 3500 Deer Creek Road, Palo Alto, California 94304. Tesla shares trade on NASDAQ
`
`under the ticker symbol “TSLA.”
`
`31.
`
`Defendant Musk is the Chairman and Chief Executive Officer of Tesla. Defendant
`
`Musk issued the materially false and misleading Tweets on behalf of himself and Tesla.
`
`MATERIALLY FALSE AND MISLEADING STATEMENTS MADE DURING THE
`
`CLASS PERIOD
`
`32.
`
`The Class Period begins on Tuesday afternoon, August 7, 2018. That is when
`
`Defendants launched a nuclear attack on Tesla’s short-sellers. At approximately 12:48 p.m.
`
`Eastern Standard Time, defendant Musk Tweeted “Am considering taking Tesla private at $420.
`
`Funding secured.” [Emphasis added.] After Defendant Musk issued this Tweet, Tesla’s stock
`
`price increased to $387.46, closing at $379.57 per share.
`
`33.
`
`In the succeeding several hours, Defendant Musk issued additional Tweets
`
`regarding the Going Private Transaction. For example, at 1:40pm, Musk Tweeted “I don’t have a
`
`controlling vote now & wouldn’t expect any shareholder to have one if we go private. I won’t be
`
`selling in either scenario.”
`
`34.
`
`At 2:00pm, Musk Tweeted “My hope is *all* current investors remain with Tesla
`
`1098965.1
`
`-8-
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 10 of 25
`
`even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla.
`
`Already do this with Fidelity’s SpaceX investment.” This Tweet was in response to @Gfilche
`
`who had Tweeted “Noooooo!!!!! Still processing what this means, but would be sad to see all the
`
`investors who’ve been w/ $TSLA miss out on the upside over the next few years. Although if this
`
`helps the mission and Elon thinks it’s smart, I understand and fully support.”
`
`35.
`
`At 2:07pm, Defendant Musk Tweeted: “Absolutely. Am super appreciative of
`
`Tesla shareholders. Will ensure their prosperity in any scenario.” This was in response to
`
`@heydave7, who had Tweeted “Or if you do take Tesla private, please have a provision for retail
`
`investors who have held Tesla shares prior to Dec 31, 2016 that those shares will be converted into
`
`private shares in the new private company. This would be only fair and the right thing to do.”
`
`36.
`
`At 2:13pm, Musk Tweeted: “Shareholders could either to sell [sic] at 420 or hold
`
`shares & go private.”
`
`37.
`
`At 2:14pm, he reassured shareholders by Tweeting that there would be “no change”
`
`to his status as CEO if the proposed deal was successful.
`
`38.
`
`At 3:07pm, Defendant Musk Tweeted: “Def no forced sales. Hope all shareholders
`
`remain. Will be way smoother & less disruptive as a private company. Ends negative propaganda
`
`from shorts.” This was in response to a Tweet from @MindFieldMusic stating that “At 1st I was
`
`upset bc I thought this would be a forced buyout. But if average folk like myself are allowed to
`
`reside with the garden walls along with you, then . . . Yes please.”
`
`39.
`
`At approximately 3:30pm, Tesla released a statement via its corporate blog titled
`
`”Taking Tesla Private.” It contained an email from Musk sent to Tesla employees. That email
`
`stated:
`
`Earlier today, I announced that I’m considering taking Tesla private at a price of
`$420/share. I wanted to let you know my rationale for this, and why I think this is
`the best path forward.
`
`First, a final decision has not yet been made, but the reason for doing this is all about
`creating the environment for Tesla to operate best. As a public company, we are
`subject to wild swings in our stock price that can be a major distraction for everyone
`working at Tesla, all of whom are shareholders. Being public also subjects us to the
`quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`1098965.1
`
`-9-
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 11 of 25
`
`may be right for a given quarter, but not necessarily right for the long-term. Finally,
`as the most shorted stock in the history of the stock market, being public means that
`there are large numbers of people who have the incentive to attack the company.
`
`I fundamentally believe that we are at our best when everyone is focused on
`executing, when we can remain focused on our long-term mission, and when there
`are not perverse incentives for people to try to harm what we’re all trying to achieve.
`
`This is especially true for a company like Tesla that has a long-term, forward-looking
`mission. SpaceX is a perfect example: it is far more operationally efficient, and that
`is largely due to the fact that it is privately held. This is not to say that it will make
`sense for Tesla to be private over the long-term. In the future, once Tesla enters a
`phase of slower, more predictable growth, it will likely make sense to return to the
`public markets.
`
`Here’s what I envision being private would mean for all shareholders, including all
`of our employees.
`
`First, I would like to structure this so that all shareholders have a choice. Either they
`can stay investors in a private Tesla or they can be bought out at $420 per share,
`which is a 20% premium over the stock price following our Q2 earnings call (which
`had already increased by 16%). My hope is for all shareholders to remain, but if they
`prefer to be bought out, then this would enable that to happen at a nice premium.
`
`Second, my intention is for all Tesla employees to remain shareholders of the
`company, just as is the case at SpaceX. If we were to go private, employees would
`still be able to periodically sell their shares and exercise their options. This would
`enable you to still share in the growing value of the company that you have all
`worked so hard to build over time.
`
`Third, the intention is not to merge SpaceX and Tesla. They would continue to have
`separate ownership and governance structures. However, the structure envisioned for
`Tesla is similar in many ways to the SpaceX structure: external shareholders and
`employee shareholders have an opportunity to sell or buy approximately every six
`months.
`
`Finally, this has nothing to do with accumulating control for myself. I own about
`20% of the company now, and I don’t envision that being substantially different after
`any deal is completed.
`
`Basically, I’m trying to accomplish an outcome where Tesla can operate at its best,
`free from as much distraction and short-term thinking as possible, and where there is
`as little change for all of our investors, including all of our employees, as possible.
`
`This proposal to go private would ultimately be finalized through a vote of our
`shareholders. If the process ends the way I expect it will, a private Tesla would
`ultimately be an enormous opportunity for all of us. Either way, the future is very
`bright and we’ll keep fighting to achieve our mission.
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`1098965.1
`
`-10-
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 12 of 25
`
`Thanks, Elon
`
`40.
`
`Finally, at 3:36pm, Musk Tweeted “Investor support is confirmed. Only reason
`
`why this is not certain is that it’s contingent on a shareholder vote.” [Emphasis added.].
`
`41.
`
`The foregoing statements were materially false and misleading and/or omitted to
`
`state other facts necessary to make the statements made not misleading because, inter alia,
`
`Defendant Musk had not secured funding for the deal. Obviously, securing funding is necessary
`
`for a deal like this to be viable. Furthermore, because Musk did not inform the market that the
`
`deal required Board approval, he further misrepresented the status and the likelihood of the Going
`
`Private Transaction to the market. Thus, contrary to the statements made by Defendants Musk and
`
`Tesla, the deal is far from certain and is not fully-financed.
`
`42.
`
`Based on Defendants’ materially false and misleading statements, Tesla shares
`
`traded-up sharply on August 7, 2018 (to $387.46) closing at $379.57 per share, on volume of over
`
`30 million shares. Among other things, this cost Tesla short-sellers hundred of millions dollars
`
`when they were forced thereafter to cover their positions by purchasing Tesla securities at
`
`artificially inflated prices. Furthermore, all purchasers of Tesla’s securities were buying millions
`
`of shares at artificially inflated prices.
`
`SUBSEQUENT DEVELOPMENTS
`
`43.
`
`On or about August 8, 2018, several Company directors, including Brad Buss,
`
`Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice, and James Murdoch,
`
`issued a statement “Last week, Elon opened a discussion with the board about taking the company
`
`private, this included discussion as to how being private could better serve Tesla’s long-term
`
`interests, and also addressed the funding for this to occur. The board has met several times over
`
`the last week and is taking the appropriate next steps to evaluate this.” [Emphasis added.] This
`
`statement further conveyed the impression to the market that the deal was financed. As a result,
`
`Tesla’s stock remained artificially inflated throughout the day of August 8, 2018.
`
`44.
`
`According to Columbia Law School professor John Coffee, "If the stock price were
`
`to fall either because there's a corrective disclosure or because people figure that no one has been
`
`1098965.1
`
`-11-
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`

`

`Case 3:18-cv-04865-EMC Document 1 Filed 08/10/18 Page 13 of 25
`
`approached by him [Musk] for financing, then you're able to satisfy a lot of causation . . . . The
`
`short-sellers will say those statements drove the price up. That's all they're going to have to
`
`show." See https://www.thestreet.com/markets/has-musk-crossed-the-line-here-s-what-the-sec-
`
`would-need-to-prove-14678013?puc=yahoo&cm_ven=YAHOO&yptr=yahoo. According to
`
`Coffee, it's unlikely financing could have already been secured for what would be roughly a $50
`
`billion deal. As Coffee states in the article, “’Funding secured' is an objective factual statement
`
`that looks implausible given the great difficulty in lining up debt investors willing to fund 70
`
`percent of a $70 billion or more record transaction.”
`
`45.
`
`On August 9, 2018, on the heels of news that the SEC was investigating and market
`
`commentators and others casting doubt on the bona fides of the deal, Tesla’s stock price fell
`
`$17.89, closing at $352.45.
`
`ADDITIONAL SCIENTER ALLEGATIONS
`
`46.
`
`As alleged herein, Defendants acted with scienter in that Defendants knew, or
`
`recklessly disregarded, that the public documents and statements they issued and disseminated to
`
`the investing public in the name of the Company during the Class Period were materially false and
`
`misleading. Defendants knowingly and substantially participated or acquiesced in the issuance or
`
`dissemination of such statements and documents as primary violations of the federal securities
`
`laws. Defendants, by virtue of their receipt of information reflecting the true facts regarding Tesla
`
`and the Proposed Acquisition Transaction, were active and culpable participants in the fraud
`
`alleged herein.
`
`47.
`
`Defendants knew and/or recklessly disregarded the false and misleading nature of
`
`the information which they caused to be disseminated to the investing public. The fraud described
`
`herein could not have been perpetrated during the Class Period without the knowledge and
`
`complicity or, at least, the reckless disregard of personnel at the highest levels of the Company,
`
`including defendant Musk, the Company’s CEO and Chairman.
`
`48.
`
`Defendant Musk, because of his position with Tesla, controlled his Tweets and the
`
`Company’s public statements d