Musk Accused of $7.5 Billion of Insider Trades in Investor Suit
Elon Musk is once again at the center of legal scrutiny as a Tesla investor brings forth a lawsuit alleging insider trading involving a substantial sum of over $7.5 billion in stock sales in 2022. The plaintiff, Michael Perry, claims that Musk had access to nonpublic information about Tesla Inc. falling short of its production and delivery targets for the fourth quarter when he offloaded part of his stake in the company. The sales, as per the lawsuit, were purportedly aimed at securing funds to support Musk’s acquisition of the social media platform formerly known as Twitter, now X.
The legal action takes aim at Musk for purportedly leveraging confidential information for personal gain, contending that he breached his fiduciary duties to Tesla and its shareholders. Filed in the Delaware Chancery Court, the lawsuit seeks to have Musk return the alleged ill-gotten gains to the electric vehicle manufacturing giant.
Musk, recognized globally for his various entrepreneurial ventures including SpaceX and Neuralink, has found himself embroiled in legal battles and regulatory scrutiny over his activities on social media and stock market maneuvers in the past. The current lawsuit emerges amidst Musk’s ongoing engagement with the US Securities and Exchange Commission (SEC), which has been probing his acquisition of X and the disclosures related to his stake in the social network.
In previously unrelated litigation with the SEC concerning a tweet about privatizing Tesla, Musk faced penalties and was mandated to have his tweets vetted by a Tesla-commissioned overseer. The recent lawsuit not only highlights claims against Musk but also implicates Tesla directors, accusing them of neglecting to enforce compliance with legal stipulations regarding stock transactions and public declarations concerning Tesla’s operations. Perry’s complaint draws attention to Musk’s optimistic public statements regarding Tesla’s performance even when, allegedly, internally aware of impending shortfall in targets.
According to the lawsuit, information about Tesla’s underperformance was secretly known to Musk in November 2022, but not disclosed to the public until January 2023. The delay in public disclosure allegedly allowed Musk to sell $7.53 billion worth of shares at inflated prices. Following the public revelation of the missed targets, Tesla’s stock price experienced a significant drop, plummeting 12% on the first day of trading after the announcement.
The lawsuit is presided over by Judge Kathaleen St. J. McCormick, who has previously overseen Musk-related legal matters, including his failed attempt to renege on the Twitter acquisition deal. In an unrelated ruling, she nullified Musk’s $56 billion compensation package from Tesla due to conflicts of interest and inadequate disclosure, a decision Tesla is seeking to have reaffirmed through a shareholder vote amidst ongoing legal appeals.
This judicial contest places Musk under renewed scrutiny, intertwining issues of corporate governance, insider trading, and the responsibilities of CEOs to their shareholders. As the legal process unfolds, the outcomes of this case could have significant implications not just for Musk and Tesla, but for executive conduct in publicly traded companies at large.
