UPDATE 2-Lawsuit accuses Tesla's Musk of fraud over tweets, going-private proposal

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(Reuters) – Tesla Inc and Chief Executive Elon Musk were sued on Friday by an investor who said they fraudulently engineered a scheme to “completely decimate” short-sellers, including through Musk’s proposal to take the electric car company private. The complaint filed by Kalman Isaacs said Musk’s alleged false and misleading tweets on Aug. 7 about a possible going-private transaction, and Tesla’s failure to correct them, were a “nuclear attack” on short-sellers that inflated Tesla’s stock price and violated federal securities laws. Tesla did not respond to a request for comment on the proposed class-action complaint filed in the federal court in San Francisco. The company is based in nearby Palo Alto, California. Short-sellers borrow shares they believe are overpriced, sell them, and then repurchase shares later at what they hope will be a lower price to make a profit. Such investors have long been an irritant for Musk, who has sometimes used Twitter to criticize them. Musk’s Aug. 7 tweets, including when he said there was “funding secured” to possibly take Tesla private, helped push Tesla’s stock price more than 13 percent above the prior day’s close. The stock has since given back more than two-thirds of that gain, in part following reports that the U.S. Securities and Exchange Commission had begun inquiring about Musk’s activity. Musk has not offered evidence that he has lined up the necessary funding to take Tesla private, and the complaint did not offer proof to the contrary. 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. Tesla’s market value exceeds $60 billion, and its shares closed Friday up $3.04 at $355.49. Musk had tweeted that Tesla could go private for $420 per share. According to the complaint, Isaacs bought 3,000 Tesla shares on Aug. 8 to cover his short position. The proposed class period begins on the afternoon of Aug. 7, and ends the next day. The case is Isaacs v Musk et al, U.S. District Court, Northern District of California, No. 18-04865.

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