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Musk’s Tesla stock sale may trigger trade probe

by SuperiorInvest

Elon Musk sold Tesla (TSLA) inventory from last month, shortly before the electric vehicle maker missed Wall Street’s annual delivery targets, is suspicious enough to warrant insider trading investigation, legal experts told The Wall Street Journal.

Key things

  • Musk’s December sale of $3.6 billion in Tesla stock amid signs of declining demand for the EV maker’s cars may trigger an insider trading investigation, legal experts said.
  • Tesla’s CEO has sold more than $39 billion in stock since November 2021, while Tesla’s stock has fallen 65% in the past year.
  • Tesla was already reportedly cutting production and working hours at its Shanghai factory before Musk’s latest stock sale.
  • The company reported quarterly shipments below its targets and analysts’ estimates weeks later, sending shares 12% lower the next day.

Tesla CEO Musk announced that he sold 22 million shares between December 12 and 14 for a total of nearly $3.6 billion.

Musk launched the sales a week after Bloomberg reported that Tesla planned to cut production at its Shanghai factory and four days after the same news service reported that the company was cutting work shifts at the factory in the latest sign that Chinese demand for electric cars Tesla is down. expectation.

On January 2, Tesla reported fourth quarter delivery numbers well below the company’s forecast as well as analysts’ expectations, prompting a 12% drop in the stock price in the first trading session in 2023. Musk raised about $1.2 billion by selling the stock in mid-December for an average of $163 a share, compared to what he would have realized at the Jan. 3 closing price of $108.10 a share.

Insider trading experts told the Wall Street Journal that the circumstances are sufficient to trigger and Securities and Exchange Commission (SEC) probe.

“Is it suspicious? Yes. Is it entirely possible that there are other explanations? Of course. But that’s what the enforcement process is all about,” the newspaper quoted Georgetown University securities law professor Donald Langevoort as saying.

“This should be of great interest to the SEC. The question here is what did he know and what did the market expect when he sold,” securities law professor James Cox told Duke University magazine.

The SEC declined to comment, while Musk and Tesla did not respond to a request for comment, according to the newspaper.

The December stock sales boosted Musk’s proceeds from selling Tesla stock to nearly $23 billion in 2022 and more than $39 billion as of November 2021. Tesla shares fell 65% in 2022, costing shareholders $700 billion. At various points last year, Musk suggested he was done selling or said Tesla stock was an attractive buy before selling more. The 2022 sales came before and after Musk bought Twitter for $44 billion in October.

Musk’s filing after the December stock sale does not indicate whether it was part of a pre-set insider trading plan. SEC rules adopted last month to crack down on abuses under such plans will require corporate insiders to indicate when reporting sales whether they occurred under such a plan. New rules for the so-called 10b5-1 plans will take effect on April 1.

If the SEC looks into Musk’s December sale, it reportedly won’t be the first time the regulation-defying tycoon has been targeted in an insider-trading probe. In February, the Wall Street Journal reported that the agency was investigating Elon Musk and his brother Kimbal Musk for selling $108 million worth of Tesla stock shortly before Elon Musk posted a poll on Twitter about whether he should sell his 10% stake in Tesla. ostensibly to pay taxes. Musk said at the time that the idea that he would warn his brother about the survey to help him avoid selling his stock “for a few million less” was “absolutely absurd.”

Separately, Musk ran afoul of the SEC as well as the SEC Federal Trade Commission in March, when it acquired a 5% stake in Twitter but did not immediately disclose it, it took at least 10 days for the stock purchases to be disclosed. The delay allowed Musk to buy more Twitter shares without notifying the seller that he had already accumulated the share that is subject to disclosure. As with the Musk insider trading probe that was reportedly launched last year, there have been no reports of an investigation since then.

Musk’s contentious relationship with the SEC dates back to Musk and Tesla’s 2018 settlement with the agency over Musk’s tweet claiming “financing secured” for a Tesla buyout, which turned out to be false. Musk and Tesla each paid $20 million to settle the case, and Musk agreed to step down as chairman of Tesla and allow Tesla’s lawyers to review his material tweets about the company before publication.

Musk has since unsuccessfully sought to invalidate the settlement in court. He also faces a class action lawsuit shareholder lawsuit this is going on in San Francisco because of the losses Tesla’s stock suffered as a result of his “funding secured” tweet.

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