Elon Musk is facing accusations that he illegally sold $7.5 billion worth of Tesla stock in the fourth quarter of 2022, knowing the company would disappoint after promising investors an “epic year-end.”
In a lawsuit filed late last week in a Delaware court, shareholder Michael Perry accused both the CEO of deliberately selling nearly 45 million shares ahead of bad auto sales data to prevent an estimated 55% drop in value. occur, as almost the entire board of directors together. violate their responsibility as directors to shareholders.
“By disposing of $7,530,113,926 worth of Tesla stock in November and December 2022 while in possession of adverse, material, non-public information, E. Musk exploited his position at Tesla and breached his fiduciary duties to Tesla,” the lawsuit alleges. , adding that other directors were also both “knowing and guilty.”
However, unlike previous stock sales by Tesla insiders, these were not the result of a trading scheme under Rule 10b5-1, which takes away an insider’s timing discretion and transfers it to a third-party broker.
Tesla shares fell to a two-year low on January 3, 2023, following the release of car sales data.
He is asking for Musk’s illicit profits – which prosecutors estimate at $3 billion – to be returned to the company through restitution, and is seeking damages from all eight then-directors for their “reckless disregard.”
The insider trading claims are Musk’s latest legal headache following the January ruling that invalidated his 2018 shareholder vote for a record compensation deal. Tesla will resume voting at the annual meeting on June 13.
‘Relentless meters’ at Tesla knew the fourth quarter would disappoint
The crux of Perry’s argument is establishing motive through the claims that Musk knew in the first place that he still needed to liquidate shares at as high a price as possible to cover a loan for the purchase of Twitter; and second, fourth-quarter sales were well behind his optimistic expectations for October 2022 (Fortune even predicted as much at the time).
Just days after boasting of “excellent fourth quarter demand,” he cut prices in China – the first of many cuts to come.
Musk may have been aware of the declining sales because of what his former head of powertrain, Drew Baglino, described last March as a corporate culture made up of “ruthless gauges,” all of which leverage real-time data to drive sales and every aspect of Tesla’s to optimize. company.
“I’m not sure there’s a company on earth that has better real-time data than Tesla,” Musk said during last year’s first-quarter investor call. “Our finger on the pulse is real-time and has no latency.”
Musk even went so far as to say that he personally examines the results of every price change to ensure that production can continually balance demand, rising when Tesla has too many orders and falling when it has too few orders.
“We immediately see what is happening and adjust the course. We literally think about it every day,” he continued. “I look at that email seven days a week and so does the rest of the team.”
Using his logic, the CEO would have known that the fourth quarter would not meet market expectations and sold his shares anyway.
Perry’s lawsuit argued that it was reasonable to conclude that he did this to avoid losing money, after promising nothing less than an “epic end of year” just weeks earlier.
“Musk sold these shares before the non-public information in his possession could be made public and affect the company’s stock price,” the lawsuit alleges.
This story originally appeared on Fortune.com
