Tesla and Elon Musk are establishing a pattern. Less than a month after defeating one shareholder-led class action securities fraud lawsuit, another has begun.
In this latest dispute, Tesla, Musk, CFO Zachary Kirkhorn and its former CFO Deepak Ahuja are accused of artificially inflating stock prices (sound familiar?) by lying about the capabilities of Tesla’s Autopilot and Full Self-Driving (FSD) technology.
Per the suit [PDF], filed yesterday in the Northern District Court of California, Tesla and its co-defendants made false or misleading statements and failed to disclose they “had significantly overstated the efficacy, viability, and safety of the Company’s Autopilot and FSD technologies” despite knowledge that “Autopilot and FSD … created a serious risk of accident and injury.”
The suit alleges that Tesla knew the capabilities of Autopilot and FSD would put it at risk of increased regulatory scrutiny and reputational harm, and so chose to make public statements – including in official filings to the Securities and Exchange Commission – that “were materially false and misleading at all relevant times.”
As a result of those misleading statements, the plaintiffs’ lawyers argue, Tesla stock tanked, leading to “significant losses and damages” incurred by anyone who invested in Tesla common stock between February 19, 2019, and February 17, 2023, all of whom are included in the proposed class.
A troubling timeline for Tesla
The plaintiffs came with receipts, and the suit includes a list of incidents The Register has covered that lawyers claim make it clear Tesla was lying about the capabilities of FSD and Autopilot, and as a result caused Tesla stock to lose value.
First mentioned is a fatal Texas accident linked to FSD in 2021 that caused Tesla stock to lose 3.4 percent, followed by news that the National Highway Traffic Safety Administration (NHTSA) opened an investigation into a series of Autopilot-linked crashes involving emergency vehicles stopped on the side of freeways. That announcement, the suit alleges, caused even more stock value loss.
The NHTSA upgraded its autopilot probe to a formal inquiry in June last year, which the suit also mentioned, as well as news in January that the SEC was investigating Musk and Tesla, both of which it said caused additional loss in valuation.
Most recently, the suit continued, Tesla was told by the NHTSA in mid-February that it was conducting a recall of Tesla’s FSD beta software due to it being unsafe, affecting up to 362,758 Tesla vehicles. According to the NHTSA’s investigation, Autopilot and FSD act unsafely around intersections and often “respond insufficiently” to speed limit changes.
Tesla said yesterday that it was pausing all rollouts of the FSD beta to new users until it could tackle the safety issues singled out by the NHTSA. It’s unclear if this decision was influenced by the lawsuit, which was also filed yesterday.
We asked Tesla to comment, but haven’t heard back. Their press mailbox still says it’s full.
Master Plan 3 better include some legal strategies
This latest lawsuit is accusing Musk, Tesla and his CFOs of violating section 10b of the Exchange Act, which states that it’s illegal to deploy a “manipulative or deceptive device or contrivance” in connection to the purchase or sale of a security.
A second charge being leveled against the quartet of defendants is that they violated section 20a of the Exchange Act, which makes a corporation’s controlling persons, like Musk and his CFOs, liable for section 10b violations.
The plaintiffs demanded a jury trial for this, but court records indicate the case has been referred for alternative dispute resolution, and as such may not make it to trial if the parties settle.
Either way, it should be an exciting Tesla Investor Day tomorrow, when Musk and co. are set to unveil “Master Plan 3” with this latest securities fraud lawsuit, an Autopilot recall and an FSD rollout pause fresh on everyone’s minds. ®