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Elon Musk hit with $7.5 billion insider trading accusations

Elon Musk hit with $7.5 billion insider trading accusations
Elmaz Sabovic

Elon Musk had insider knowledge of Tesla’s (NASDAQ: TSLA) impending failure to meet production and delivery targets when he sold more than $7.5 billion worth of stock in 2022, according to a lawsuit filed by a shareholder. 

Elon Musk's insider sales of Tesla stock in 2022. Source: Barchart
Elon Musk’s insider sales of Tesla stock in 2022. Source: Barchart

The lawsuit claims that Tesla’s CEO was aware of nonpublic information that the company would miss its fourth-quarter goals when he sold his shares. 

The shareholder, Michael Perry, filed the suit in Delaware Chancery Court, alleging that Musk exploited his position and breached his fiduciary duties to Tesla and its shareholders.

Musk might have breached the law with insider sales of Tesla stock

The lawsuit asserts that Tesla’s CEO used insider information to sell part of his Tesla stake to raise funds for acquiring the social media platform X, formerly Twitter.

Perry contends that the EV maker CEO’s actions exploited his role at Tesla, enabling him to profit from nonpublic, adverse information. The lawsuit calls for Judge McCormick to order Musk to return the profits from his allegedly improper trading activities to the company. 

Elon Musk’s history of disputes and regulatory scrutiny 

This lawsuit is the latest in a series of legal challenges concerning Musk’s stock transactions and public statements. It follows Musk’s recent agreement to undergo additional questioning by the US Securities and Exchange Commission (SEC) about his Twitter acquisition and the disclosure of his initial stake in the company. 

Previously, Tesla’s founder faced fines and had to appoint a ‘Twitter sitter’ to oversee his communications after a controversial tweet about taking Tesla private.

In the lawsuit, Perry also targets Tesla’s directors for allegedly failing to ensure the head of Tesla complied with legal obligations related to stock sales and company performance statements. 

The suit notes that Musk had publicly praised Tesla’s performance earlier in 2022, claiming high demand and a strong sales outlook. 

However, Perry alleges that by mid-November 2022, Musk knew Tesla would not meet its quarterly targets. Despite this, he sold $7.53 billion in shares before the disappointing results were publicly announced in January 2023. 

Following the announcement, Tesla’s stock price dropped 12%, from $123.18 to $108.10, on the first trading day 2023.

Musk is currently seeking investor support for the pay package at its upcoming June 13 annual meeting, which could influence an appeal of McCormick’s ruling. Proxy adviser Institutional Shareholder Services has recommended investors reject the package.

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