A federal judge stated Tesla and CEO Elon Musk should face a lawsuit claiming they misled shareholders when Musk tweeted that he had secured funding to take his electric automotive firm private in a $72 billion transaction.
U.S. District Judge Edward Chen ruled Wednesday that shareholders might attempt to prove Musk intended to defraud them with his August 7, 2018 tweet and follow-up messages about plans for his Palo Alto, California-based firm.
The judge stated shareholders might further attempt to prove Musk’s tweet was the “proximate cause” of volatility in Tesla’s stock value that caused billions of dollars of losses.
Musk’s tweet helped push Tesla’s stock worth over 13% above the previous day’s close. But it surely soon gave those gains back, and by August 17, 2018, had dropped 11% below where it was before the original tweet.
Some investors called the tweet a ploy to squeeze short-sellers, long an irritant for Musk, who had been betting Tesla’s stock would plunge.
A month later, he agreed to pay a $20 million civil fine to settle fraud charges by the U.S. Securities and Exchange Commission(SEC).
The SEC further required Musk to step down as chairperson, and Tesla attorneys to vet some of his tweets in advance. Tesla struck a separate $20 million settlement with the regulator.
Tesla’s stock price has since doubled, and Musk is worth $37.6 billion based on Forbes magazine.