Musk was accused of improperly selling $7.5 billion in Tesla stock before reports of weak sales that sent the price down

Musk was accused of improperly selling $7.5 billion in Tesla stock before reports of weak sales that sent the price down

Elon Musk and Tesla’s board are facing a shareholder lawsuit over the sale of $7.5 billion worth of Tesla stock in late 2022, ahead of a January 2023 sales report that sent the stock price plunging.

Musk sold a total of 41.5 million shares of Tesla stock between Nov. 4 and Dec. 12, according to company filings, as he liquidated some of his holdings to free up cash for his recently completed Twitter purchase.

The sale came shortly after an earnings call on October 19, 2022 where he told investors “I can’t stress enough, we have very good demand for Q4.”

But when Tesla reported fourth-quarter sales, they were significantly weaker than forecast, and that sent shares down 12%, the worst day of trading for the stock in more than two years.

“Musk profited from his misconduct and exploitation of material and adverse inside information,” claims the suit, filed by shareholder Michael Perry. The suit asks Musk to return the profits from the stock sale to the company, as well as attorney’s fees and other costs to Perry for bringing the suit.

Musk likely knew weaker sales reports were coming at the time of the sale, the suit charges. Tesla cut its prices in China by 9% on October 24, 2022, kicking off a string of price cuts that have seen Tesla and other automakers lower electric vehicle prices in the face of weaker-than-forecast sales.

And in April of last year, Musk boasted about the latest sales data Tesla has, compared to automakers that sell their vehicles to a network of independent dealers rather than directly to customers.

“I’m not sure there’s any company on earth that has better real-time data than Tesla, except maybe SpaceX Starlink,” he told investors at the time, referring to one of his other companies.

The sale of Tesla shares financed the purchase of Twitter
Before Musk began his quest to buy social media platform Twitter, now known as X, the billionaire executive rarely sold Tesla stock. Often, his sales are tied to covering the tax bill he faces due to the exercise of stock options. And many of those sales are part of a set schedule, so there can be little question as to whether they are based on insider information.

But from April to December in 2022, Musk sold $22.9 billion worth of Tesla stock in unscheduled sales to help finance his $44 billion purchase of Twitter that year.

His sales in November and December 2022, along with price cuts in China, helped lower Tesla’s stock price even before the January sales report. Its sale on November 4, 2022 came at an average price of $208.58, according to a filing with the Securities and Exchange Commission. His last sale of this group, on December 14, came at an average price that day of $158.37.

But January’s fourth-quarter sales report, which came on Sunday, sent shares down to $108.10 from $123.18 at the previous Friday’s close.

Tesla shares soon rebounded, though, and more than doubled over the course of 2023 to close at $248.48. But the stock has struggled this year, losing 29% of its value year to date through Monday’s close.

The suit was filed in Delaware Court of Chancery on Thursday and was first reported by Bloomberg. Tesla, which does not have a public relations department, did not return requests for comment.

The lawsuit comes as Tesla seeks shareholder approval to return stock options to Musk that he was stripped of in a January court ruling in Delaware. Two influential advisory firms have urged shareholders to vote against his controversial pay package and raised concerns about the CEO’s various side projects.

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