Elon Musk is facing charges that he illegally sold $7.5 billion worth of Tesla shares in the fourth quarter of 2022, knowing the business would disappoint after promising investors an “epic end to the year.”
In a lawsuit filed in Delaware court late last week, shareholder Michael Perry accused both the CEO of deliberately dumping nearly 45 million shares ahead of bad auto sales data to prevent a roughly 55% drop in value and nearly the entire board of directors. totality. violating the directors’ responsibility to shareholders.
“By selling $7,530,113,926 worth of Tesla shares in November and December 2022 while he had adverse, material non-public information, Musk took advantage of his position at Tesla and breached his fiduciary duties to Tesla.” the lawsuit allegesadding that other directors were also “knowledgeable and culpable.”
However, unlike previous sales of shares by Tesla insiders, they were not the result of a Rule 10b5-1 trading plan, which takes away the insider’s ability to determine the timing and assigns it to a third-party broker.
Tesla shares fell to a two-year low on January 3, 2023, following the release of auto sales data.
It demands that Musk’s illicit profits, which the plaintiff estimates at $3 billion, be returned to the company through the repayment of debts, and seeks damages from all eight directors at the time for their “reckless disregard.”
The insider trading claims are Musk’s latest legal headache following a January ruling that invalidated his 2018 shareholder vote for a record compensation deal. Tesla is re-voting at its annual meeting on June 13.
Tesla’s ‘Ruthless Measurers’ Knew the Fourth Quarter Would Be a Disappointment
The crux of Perry’s argument is to establish motive through statements that Musk knew: 1) he still needed to sell shares at the highest possible price to cover the loan to buy Twitter and 2) fourth-quarter sales fell significantly short of his bullish expectations for October 2022 of the year. (Luck even predicted it at the time).
Just days after boasting of “excellent demand in the fourth quarter,” he cut prices in China, the first of many to come.
Musk may have been aware of declining sales due to what his former powertrain chief Drew Baglino described last March as a corporate culture of “ruthless measurers” using the latest data to boost sales and optimize every aspect of Tesla’s operations. . business.
“I’m not sure there’s any company on Earth that has better real-time data than Tesla,” Musk said during a call with investors in the first quarter of last year. “We keep our finger on the pulse in real time and without delay.”
Musk has gone so far as to say he personally reviews the results of every price change to ensure production can continually balance demand, rising when Tesla has too many orders and falling when it has too few.
“We immediately see what is happening and correct course. We think about this literally every day,” he continued. “I look at this email seven days a week, as does the rest of the team.”
Using his logic, the CEO knew that the fourth quarter would not meet market expectations and sold his shares anyway.
Perry’s lawsuit argued that it was reasonable to infer that he did this to avoid losing money, promising nothing more than “epic end of yearjust a few weeks ago.
“Musk sold these shares before the non-public information he had could be publicly disclosed and affect the company’s stock price,” the lawsuit states.