What you need to know:
- The lawsuit alleges, “Musk exploited his position at Tesla, and he breached his fiduciary duties to Tesla,” and seeks court intervention to compel Musk to return the profits generated from the trades.
- In addition, Musk is entangled in a regulatory inquiry to ascertain whether he violated federal securities laws in 2022 by purchasing stock in the social media platform Twitter, later rebranded as X.
On Thursday, a Tesla shareholder lodged a lawsuit alleging CEO Elon Musk engaged in insider trading by offloading more than $7.5 billion worth of the electric car manufacturer’s shares in late 2022. The plaintiff, Michael Perry, asserted in the Delaware Chancery Court filing that Musk sold the shares prior to the disclosure of potentially disappointing production and delivery figures. Following the public release of Tesla’s fourth-quarter numbers on January 2, 2023, Perry claimed the company’s share price nosedived, contending that Musk illicitly gained approximately $3 billion in insider profits.
The lawsuit alleges, “Musk exploited his position at Tesla, and he breached his fiduciary duties to Tesla,” and seeks court intervention to compel Musk to return the profits generated from the trades. It states that Musk sold the shares across multiple dates in November and December 2022. Furthermore, the lawsuit implicates Tesla’s directors, accusing them of failing in their fiduciary duty by permitting Musk to sell the shares.
In the lawsuit, Perry alleges that Musk, who had previously described demand for Tesla’s vehicles as “excellent” in 2022, became aware of lower-than-expected numbers around mid-November due to his access to real-time data. Perry claims that Musk sold his shares before this information became public. Subsequently, news of vehicle price discounts, which raised concerns about demand, along with the release of the numbers in January, led to a significant decline in Tesla’s stock price.
The lawsuit contends, “Had (Musk) waited to make these sales until after the release of material adverse news,… his sales would have netted him less than 55% of the amounts realized from his November and December 2022 sales.”
The lawsuit adds to Musk’s growing list of legal challenges. Concurrently, he faces resistance from certain Tesla shareholders, who are scheduled to vote on June 13 regarding the validation of his $56 billion pay package. Earlier in January, a Delaware judge nullified this package, citing Musk’s improper control over the process. Notably, Tesla is incorporated in Delaware.
In addition, Musk is entangled in a regulatory inquiry to ascertain whether he violated federal securities laws in 2022 by purchasing stock in the social media platform Twitter, later rebranded as X. Musk has publicly accused the U.S. Securities and Exchange Commission of attempting to “harass” him through what he perceives as unjustified investigations.
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