Billionaire Elon Musk and all 11 members of Tesla’s board of directors have been named in a shareholder lawsuit claiming the Tesla CEO’s “unchecked misstatements on Twitter” have harmed the company.
The lawsuit was filed March 8 in the Delaware Court of Chancery by the Laborers’ District Council and Contractors’ Pension Fund of Ohio, a Tesla shareholder.
The plaintiffs seek a declaratory judgment and a permanent injunction against Musk over “his unchecked use of Twitter to make inaccurate statements about the company.” They are also pursuing an unspecified amount in monetary damages.
In a statement , the Delaware law firm of Grant & Eisenhofer — which is representing the shareholders — trashed Musk over what they consider his reckless tweets.
The plaintiff’s lawyers also torched Tesla’s board, saying they breached their fiduciary duty by “failing to rein in” Musk when he posts tweets concerning Tesla’s business operations.
“Mr. Musk has continually disregarded all efforts to rein in his material misstatements on social media.”
“He has ignored federal court orders, a settlement with the SEC, and even his company’s own corporate policies expressly requiring that any of his tweets regarding Tesla be pre-screened.”
“His conduct has not only cost Tesla shareholders dearly, but threatens to expose the company to even greater liability and litigation in the future.”
“The Board of Directors has been completely ineffective. And in fact, Tesla still identifies Mr. Musk’s personal Twitter account as a source of official disclosures by the company. It has to stop.”
The lawsuit is currently under seal. However, a public version will be made available by March 12.
Tesla has 11 members on its board of directors (including Musk). They are all being sued.
The full case caption is Laborers’ District Council and Contractors’ Pension Fund of Ohio, Gloria Lupkin, and Jeffrey H. Kripitz on Behalf of Tesla v. Elon Musk.
As CCN.com reported, Musk remained on Tesla’s board but was forced to step down as chairman in September 2018 pursuant to an agreement with the Securities and Exchange Commission over a controversial August 2018 tweet where he suggested that he might take Tesla private.
Under that agreement, Musk agreed to pay a $20 million fine to settle the SEC’s securities fraud charge. He also agreed to step down as chairman of Tesla’s board and have his communications be monitored by Tesla lawyers before he tweets.
In February 2019, Musk caused another uproar after posting a vague tweet about Tesla’s 2019 production projection. He later clarified his original tweet, but the damage was done — as shareholders were already up in arms.
On February 26, Musk enraged the SEC by criticizing the agency when he tweeted, “Something is broken with SEC oversight.”
The SEC reacted by filing a contempt motion, saying the billionaire mogul violated his September 2018 SEC agreement, under which he agreed to get approval before tweeting anything that could impact Tesla’s stock price.
Critics noted that Musk’s tweet had no impact on Tesla’s stock price. However, Musk was already skating on thin ice because the SEC and some shareholders have been trying to remove him as CEO for a while.
The power war brewing inside Tesla has gotten so personal and murky that shareholders tried to subpoena Elon Musk’s on-again, off-again girlfriend, pop star Grimes (real name: Claire Elise Boucher).
Musk’s lawyers responded by filing a motion to block the subpoena, calling it harassment and cheap PR stunt.
“Every defendant in every securities class action has a spouse, significant other and friends, but that does not justify discovery of them,” Musk’s lawyer said.
Last week, CNBC host Jim Cramer ripped Elon Musk for criticizing the SEC, saying he should be fired as CEO.
“This guy’s going to attack the SEC? How about removing him? The guy just attacks the SEC as if it’s funny. So I think he should be removed.”
Meanwhile, some shareholders stand by Elon Musk and say Tesla will be as big as Amazon in a few years.
TSLA shareholder Cathie Wood, the CEO of ARK Invest, has no problem with Musk’s mercurial personality and says it’s just a matter of getting used to his flighty demeanor.
Hedge fund billionaire David Einhorn — who’s shorting Tesla — gloated that the “the wheels are coming off — literally” at the electric-car company Tesla.