Elon Musk Sued By Shareholder Over $7.5B Insider Trading Claims

--FILE--Tesla CEO Elon Musk is pictured during a delivery ceremony at the sales center of Tesla in Jinqiao, Shanghai, China, 23 April 2014. Tesla CEO Elon Musk and the electric car company have agreed to pay a total of $40 million and make a series of concessions to settle a government lawsuit alleging Musk duped investors with misleading statements about a proposed buyout of the company. Tesla and Musk will each pay $20m to settle the case. The settlement will require Musk to relinquish his role as chairman for at least three years, but he will able to remain as CEO. The Securities and Exchange Commission announced the settlement Saturday, just two days after filing a case seeking to oust Musk as CEO. *** Local Caption ***

Elon Musk is facing a lawsuit filed by a shareholder of Tesla, in which he’s being accused of insider trading.

The lawsuit, filed in Delaware Chancery Court last week by Michael Perry, revolves around $7.5 billion in shares that Musk sold late in 2022. The sale occurred before the electric car company released its fourth-quarter sales numbers on January 2 of 2023, which resulted in Tesla’s stock price plummeting.

Yet, according to the lawsuit, Musk “improperly benefited” by roughly $3 billion in what it called insider profits.

As the suit states:

“Musk exploited his position at Tesla, and he breached his fiduciary duties to Tesla.”

The lawsuit is seeking for the court to force Musk to return whatever profit he made from those particular trades. The trades in question occurred between November and December of 2022, and included multiple transactions. 

In addition to Musk, the lawsuit names the directors of Tesla as defendants, claiming they breached their own fiduciary duty because they allowed Musk to sell those shares.

In 2022, Musk claimed that the demand for the company’s vehicles were “excellent.” However, Perry said in the lawsuit that Musk discovered in the middle of November that year that Tesla’s sales numbers were actually lower than they were expected to be.

Since he has access to real-time data at the company, since he’s the CEO, Musk was able to sell off his shares before that information was made available to the public.

Ultimately, in early 2023, Tesla’s stock price tanked after news was released about price discounts the company was giving, which sparked concerns about demand.

As the lawsuit points out:

“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.”

Neither Musk nor other Tesla officials responded to a request for comment from Reuters.

Musk is facing plenty of legal challenges.

On June 13, some shareholders of Tesla will vote on whether to ratify his compensation package, which amounts to $56 billion. A judge in Delaware, where Tesla is incorporated, voided that contract in January, after she found that Musk had improper controls over the negotiation process.

In addition, federal regulatory agencies are probing whether Musk in 2022 broke securities laws when he purchased stock in Twitter, the social media platform that he later purchased, took private and renamed X. 

For his part, Musk said the U.S. Securities and Exchange Commission was trying to “harass” him by conducting investigations that are wholly unwarranted.

SEC investigations are nothing new to Musk, who first clashed with federal regulators in 2018 when he tweeted a message that he had “funding secured” to make Tesla a private company.

There’s also another lawsuit pending that was filed from shareholders that accuse the Tesla CEO of defrauding investors in X by delaying the disclosure of his stake in the company so that he could amass lots of shares at reduced prices.