Tesla Motors, Inc. (“Tesla”) is a publicly traded company on the NASDAQ. Tesla develops, designs, manufactures, and offers for sale fully electric performance vehicles and advanced power-train components for electric vehicles. Although Tesla was founded here in the United Sates, it now has more remote locations and delivers its cars to consumers all over the world. Tesla has enjoyed great success recently. Tesla’s stock has made early shareholders of the company very happy.
Nevertheless, several U.S. law firms attempted to bring class-action shareholder derivative claims when reports of Tesla vehicles catching fire after accidents emerged, which caused a temporary sell-off of Tesla’s stock. The lawsuits claimed that Tesla violated SEC disclosure rules by failing to disclose to shareholders that the vehicle had safety issues. However, the lawsuits did not move forward because shareholders rejected the formation of the shareholder class. Shareholders claimed that they did not need the protection of a class-action lawsuit because they did not believe that the vehicle has a design defect that makes it prone to fires. This illustrates that although shareholder derivative claims are a valid concern for any publicly traded company, an excellent way to defend your business against such lawsuits is to keep your shareholders happy through outstanding financial performance.
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