Delaware, USA — A Tesla shareholder has filed a lawsuit against CEO Elon Musk, accusing him of insider trading related to the sale of over $7.5 billion worth of Tesla shares in late 2022. The lawsuit, filed on Thursday in the Delaware Chancery Court by shareholder Michael Perry, alleges that Musk sold the shares after learning non-public information about potentially disappointing production and delivery numbers.
Perry claims that Musk, who had previously stated that demand for Tesla vehicles was "excellent" in 2022, had access to real-time sales data and became aware of lower-than-expected numbers by mid-November. The lawsuit asserts that Musk sold his shares before this adverse information became public, thereby "improperly benefiting" by approximately $3 billion in insider profits.
"Musk exploited his position at Tesla, and he breached his fiduciary duties to Tesla," the lawsuit states. Perry is seeking a court directive for Musk to return the profits made from the alleged insider trading.
The lawsuit also accuses Tesla’s board of directors of breaching their fiduciary duty by permitting Musk to sell the shares during this period. Neither Musk nor Tesla representatives have responded to requests for comment regarding the allegations.
The case highlights concerns over corporate governance and the responsibilities of executives with access to sensitive company information. Following announcements of vehicle price discounts that raised demand concerns and the public release of fourth-quarter numbers on January 2, 2023, Tesla’s stock price experienced a significant decline.
"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," the lawsuit claims.
This legal action adds to a series of challenges facing Musk. Tesla shareholders are set to vote on June 13 on whether to ratify his controversial $56 billion compensation package, which was scrutinized by a Delaware judge earlier this year. Additionally, Musk is under regulatory investigation by the U.S. Securities and Exchange Commission (SEC) to determine if he violated federal securities laws in 2022 when purchasing stock in the social media platform Twitter, now rebranded as X.
Musk has publicly criticized the SEC, alleging that the regulator is attempting to "harass" him through unwarranted investigations. The ongoing feud between Musk and the SEC dates back to 2018, following his tweet claiming that he had "funding secured" to take Tesla private, which led to legal challenges and settlement agreements.
Furthermore, a separate shareholder lawsuit accuses Musk of defrauding investors by delaying the disclosure of his substantial stake in Twitter, allowing him to acquire shares at lower prices before his intentions became public knowledge.
The outcome of these legal proceedings could have significant implications for Tesla’s corporate governance and investor confidence, particularly in key markets including Asia, where Tesla has substantial operations and a growing customer base.
Reference(s):
Tesla shareholder sues Musk for alleged $7.5 billion insider trading
cgtn.com
