A Tesla shareholder filed a lawsuit on Thursday, alleging that CEO Elon Musk engaged in insider trading by selling more than seven billion five hundred million dollars worth of shares before it was publicly released in 2022.
Tesla Stakeholder's Insider Trading Allegation
In a lawsuit filed in Delaware Chancery Court, shareholder Michael Perry alleged that Tesla's share price experienced a significant decline following the public release of the company's fourth-quarter figures on January 2, 2023, where Elon Musk improperly benefited from approximately three billion dollars in insider profits. The lawsuit claimed that Musk exploited his position at Tesla and breached his fiduciary duties to the company, requesting the court to retrieve the profits generated from the trades.
As per the lawsuit, Musk sold the shares on multiple dates in November and December of 2022, which Tesla's directors also permitted. Perry asserted that Musk, who had previously stated in 2022 that demand for Tesla's vehicles was excellent, became aware of the lower-than-expected numbers in mid-November through his access to real-time data and sold his shares before this information became public.
The lawsuit contends that if Musk had postponed these sales until after the release of significant adverse news, the proceeds from his sales would have been less than 55% of the amounts he obtained from his sales in November and December 2022.
Series of Musk's Legal Headaches
The lawsuit adds to Musk's ongoing legal headaches. Musk encountered resistance from certain Tesla shareholders, who were scheduled to vote on June 13 to ratify his $56 billion pay package. A Delaware judge nullified the package in January due to her findings that Musk improperly controlled the process.
Musk also currently faces scrutiny in a regulatory investigation to determine whether he violated federal securities laws in 2022 by purchasing stock in the social media platform Twitter, which he subsequently renamed X. Musk criticized the U.S. Securities and Exchange Commission for what he perceived as unwarranted investigations, accusing them of attempting to harass him.
Musk and the leading U.S. markets regulator have been entangled in a protracted conflict since 2018 when Musk tweeted that he had "funding secured" to privatize Tesla.
Another lawsuit from a shareholder has alleged that Musk defrauded investors in X by delaying the disclosure of his stake in the social media company to accumulate shares at lower prices. The complaint, filed in New York federal court, accuses Musk of breaching a regulatory deadline to disclose that he had amassed a stake of at least 5% in Twitter. Instead, Musk did not disclose his position on Twitter until he had nearly doubled his stake to over 9%. According to the lawsuit, this strategy disadvantaged less affluent investors who sold shares in the San Francisco company during the nearly two weeks before Musk publicly acknowledged holding a significant stake.
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