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Investors hit the brakes on Tesla Motors (NASDAQ: TSLA) today after Brower Piven, announced a class action lawsuit against the electric-car maker. In a press release, Brower Piven is calling for lead plaintiffs to take a stand against the automaker, seeking anyone who has "suffered a net loss from investment in Tesla Motors, Inc. securities purchased on or after May 10, 2013, and held through any of the revelations of negative information on October 2, 2013, October 28, 2013, November 5, 2013, and/or November 7, 2013...".
Shares of Tesla had fallen more than 5% at the time of this writing.
The bloodsuckers swarm
The suit accuses the defendant (Tesla) of "violations of the Securities Exchange Act of 1934 by virtue of the defendants' failure to disclose during the Class Period that the Model S, the Company's only production vehicle for sale, suffered from material defects which caused the battery pack to ignite and erupt in flames under certain driving conditions."
The gist here being that Brower Piven is accusing Tesla of misleading shareholders about certain information, such as the safety of its cars. This couldn't be further from the truth. It's true that Tesla's Model S has suffered three battery fires in the past six weeks. But each incident was the result of either a collision with road debris, or in one case the car crashing into a tree. None of these fires were the result of "material defects" as stated in the class action suit.
In fact, the National Highway Traffic Safety Administration found that the Model S fires in October were, in fact, not the result of "a vehicle safety defect or noncompliance with federal safety standards". Even those drivers whose cars caught fire are standing behind Tesla today. Juris Shibayama, the driver involved in last week's incident, went as far as to say that the Model S saved his life.
Tesla's Model S is one of the safest cars on the road today. The real reason law firms pursue suits like this is in hopes of bullying companies into paying settlements. Tesla investors needn't worry. Given the absurd claims of this suit it isn't likely that it will hold up in court.
Fool contributor Tamara Rutter owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.