Tesla CEO Elon Musk is facing a lawsuit alleging he illegally sold $7.5 billion worth of company stock in the fourth quarter of 2022, knowing that the business would disappoint investors after promising an “epic end of year.”
Fortune reports that in a lawsuit filed with a Delaware court last week, shareholder Michael Perry accused Musk of deliberately unloading nearly 45 million shares in advance of poor vehicle sales data to prevent an estimated 55 percent hit in share value. The lawsuit also alleges that almost the entire board of directors collectively violated their responsibility toward shareholders.
SHANGHAI, Jan. 7, 2020 — Tesla CEO Elon Musk poses with Tesla China-made Model 3 vehicle owners during a ceremony in Shanghai, east China, Jan. 7, 2020. (Photo by Ding Ting/Xinhua via Getty)
“By disposing of $7,530,113,926 worth of Tesla stock in November and December 2022 while he was in possession of adverse, material non-public information, E. Musk exploited his position at Tesla, and he breached his fiduciary duties to Tesla,” the lawsuit claims, adding other directors were both “knowing and culpable” as well.
Unlike previous stock sales by Tesla insiders, these transactions were not the result of a Rule 10b5-1 trading plan, which removes discretion over timing from an insider and hands them to a third-party broker. Tesla shares slumped to a two-year low on January 3, 2023, following the release of the car sales data.
Perry is asking for Musk’s alleged illegal gains, estimated at $3 billion, to be returned to the company via disgorgement. He is also seeking damages from all eight directors at the time for their “reckless disregard.”
The lawsuit argues that Musk knew he needed to liquidate stock at as high a price as possible to cover a loan for purchasing Twitter and that fourth-quarter sales trended well behind his bullish October 2022 expectations. Just days after boasting about “excellent demand for Q4,” Musk slashed prices in China — the first of many cuts yet to come.
According to former powertrain head Drew Baglino, Tesla’s corporate culture is composed of “ruthless measurers,” all harnessing up-to-the-minute data to boost sales and optimize every aspect of the business. Musk himself stated, “I’m not sure there’s any company on Earth that has better real-time data than Tesla. Our finger on the pulse is real-time and does not have latency.”
Musk even claimed to personally examine the results of each price change to ensure production can continuously balance demand. Using his own logic, the lawsuit argues that Musk would have known that Q4 would not meet market expectations and sold his shares anyway to avoid losing money, having promised an “epic end of year” only weeks earlier.
Read more at Fortune here.
Lucas Nolan is a reporter for Breitbart News covering issues of free speech and online censorship.
