Tesla Inc. (TSLA) is once again in the legal spotlight as a shareholder has filed a lawsuit accusing CEO Elon Musk of insider trading.
The suit, filed by shareholder Michael Perry in Delaware Chancery Court, alleges that Musk sold over $7.5 billion worth of Tesla shares in late 2022 based on non-public information about potentially disappointing production and delivery numbers.
The lawsuit claims that Musk "improperly benefited" by approximately $3 billion, exploiting his access to real-time data on Tesla’s performance. According to Perry, Musk became aware of lower-than-expected numbers by mid-November 2022 and sold his shares in November and December before the information was made public. The lawsuit further accuses Tesla’s directors of breaching their fiduciary duties by allowing Musk to proceed with these sales.
Stock Price Impact and Legal Implications
Tesla's stock price fell sharply after the company reported its fourth-quarter numbers on January 2, 2023, a period marked by production issues and vehicle price discounts that raised demand concerns. Perry argues that had Musk waited to sell his shares until after the adverse news was released, he would have netted significantly less profit, highlighting the alleged financial advantage gained through insider trading.
This lawsuit adds to Musk’s growing list of legal challenges. Recently, advisory firms Institutional Shareholder Services and Glass Lewis have recommended that Tesla shareholders reject Musk's $56 billion pay package, calling it "excessive" and expressing concerns about his numerous ventures outside Tesla, such as his involvement with X, formerly known as Twitter. This pay package, initially approved in 2018, was voided by a Delaware judge earlier this year, who found that Musk had improperly influenced the decision-making process.
Regulatory Probes and Broader Legal Challenges
Furthermore, Musk is also facing a regulatory probe into whether he violated federal securities laws when he purchased stock in Twitter. He has dismissed the U.S. Securities and Exchange Commission’s investigation as harassment. This follows a long-standing feud with the SEC, dating back to his 2018 tweet claiming he had "funding secured" to take Tesla private, which led to significant market volatility.
In addition to the insider trading allegations, a separate lawsuit accuses Musk of defrauding X investors by delaying the disclosure of his stake in the social media company, allowing him to buy shares at lower prices.
As Tesla prepares for its annual shareholder meeting on June 13, where shareholders will vote on whether to ratify Musk’s contested pay package, these legal and regulatory challenges cast a significant shadow over the company's governance and Musk's leadership.
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