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Short-Sellers Sue Tesla After Musk's 'Going Private' Tweets (bbc.co.uk)
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."
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."
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.
SJW n. One who posts facts.
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.
You are welcome on my lawn.
That article is wrong based on the underlying linked SEC report on on the notes, 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.