A Tesla shareholder’s legal claim alleges that CEO Elon Musk participated in insider trading by selling over $7.5 billion worth of company shares prior to the revelation of disappointing production and delivery data towards the end of 2022. In Delaware Chancery Court, shareholder Michael Perry filed the lawsuit, claiming Musk amassed around $3 billion in insider profits. The lawsuit argues Musk breached his fiduciary duties to Tesla by selling shares using undisclosed information.
“Musk exploited his position at Tesla, and he breached his fiduciary duties to Tesla,” the lawsuit said, asking the court to direct Musk to return the profits made from the trades.
The legal action maintains that Musk sold shares throughout November and December 2022, supposedly having awareness of lower-than-expected figures before their public disclosure in January 2023. Moreover, Tesla’s board members are implicated in the lawsuit for purportedly allowing Musk’s share sales, thereby breaching their own fiduciary obligations. Both Musk and Tesla refrained from promptly responding to Reuters’ requests for comments on the issue.
According to Perry’s lawsuit, despite previously endorsing strong demand for Tesla vehicles in 2022, Musk possessed real-time data indicating otherwise and divested shares ahead of negative developments, including concerns over demand spurred by adjustments in vehicle pricing.
Consequently, when the disappointing figures were made public, Tesla’s stock value witnessed a substantial decline. The lawsuit argues that if Musk had delayed his share sales until after the negative news surfaced, his profits would have been considerably lower.
“Had (Musk) waited to make these sales until after the release of material adverse news,… his sales would have netted him less than 55% of the amounts realized from his November and December 2022 sales,” the lawsuit said.
The lawsuit adds to Musk’s ongoing struggles. Shareholders will vote on June 13 on his $56 billion compensation plan, previously invalidated by a Delaware judge over concerns of his undue control. Tesla being incorporated in Delaware complicates the legal situation further.
Additionally, Musk faces an inquiry into his 2022 purchase of Twitter stock, rebranded as X. He accuses the SEC of singling him out unfairly, echoing past conflicts since 2018 when his Tesla privatization tweet sparked accusations of securities law breaches.
Shareholders also claim Musk misled X investors by withholding his stake, allowing him to buy shares cheaper. These legal disputes intensify scrutiny of Musk’s conduct, prompting wider debates about Tesla’s corporate governance and transparency.
