A Tesla shareholder filed a lawsuit alleging that CEO Elon Musk engaged in insider trading when he sold more than $7.5 billion in the company’s shares in late 2022.
TakeAway Points:
- Michael Perry, a Tesla shareholder, filed a lawsuit alleging that CEO Elon Musk engaged in insider trading of more than $7.5 billion.
- Perry stated that Musk “improperly benefitted” by around $3 billion in insider profits and that the company’s share price fell after its fourth-quarter results were released on January 2, 2023.
- This suit comes after some Tesla shareholders’ opposition to Musk, who faces a June 13 vote on whether to approve his $56 billion compensation package, which was declared illegal in January by a Delaware judge for improper process control.
A Shareholder in Tesla sues CEO
Michael Perry, a shareholder, brought the complaint in Delaware Chancery Court. The lawsuit claims that Musk sold the shares prior to the release, potentially discouraging production and delivery figures.
Perry stated that Musk “improperly benefitted” by around $3 billion in insider profits and that the company’s share price fell after its fourth-quarter results were released on January 2, 2023.
“Musk exploited his position at Tesla, and he breached his fiduciary duties to Tesla,” the lawsuit said, asking the court to direct Musk to return the profits made from the trades.
The lawsuit claims that Musk sold the shares between November 2022 and December 2022 at different times.
The lawsuit further alleged that by permitting Musk to sell the shares, Tesla’s board had violated their fiduciary duties.
According to Perry’s claim, Musk—who declared in 2022 that there was “great” demand for Tesla cars—sold his shares before the information became public in mid-November after learning about the lower-than-expected numbers using real-time data access.
Tesla’s stock fell precipitously when the statistics were revealed in January and reports of car pricing reductions that raised questions about demand surfaced.
“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 realised from his November and December 2022 sales,” the lawsuit said.
The complaint is Musk’s most recent legal challenge. It coincides with resistance to Musk from certain Tesla shareholders, who will vote on June 13 on whether to approve his $56 billion compensation package, which was ruled unlawful by a Delaware judge in January for improper process control. Delaware is where Tesla is incorporated.
Musk is under Regulatory Investigation
In addition, Musk is currently the subject of a regulatory investigation to find out if he violated federal securities laws in 2022 when he purchased ownership in the social media company Twitter, which he then rebranded as X. Musk claimed that unjustified probes by the U.S. Securities and Exchange Commission were an attempt to “harass” him.
Musk’s tweet in 2018 announcing he had “funding secured” to take Tesla private set off a years-long spat with the head of the U.S. markets regulator.
Musk is accused of cheating X investors in a different shareholder dispute by concealing his ownership of the social network business in order to accumulate shares at a discount.
