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The courtroom in Wilmington, Delaware, saw a significant legal development recently. A large shareholder has accused Elon Musk of raking in billions through selling Tesla (NASDAQ: TSLA) shares, allegedly using insider knowledge. The lawsuit calls for a court mandate requiring Musk to return these "unlawful profits."
This legal drama intensifies just days before a Tesla shareholders vote regarding the reinstatement of Musk's $56 billion compensation package—a package previously nullified by a Delaware judge in January, citing improper control over the decision-making process by Musk himself. The plaintiffs, Employees' Retirement System of Rhode Island (ERSRI), claim that Musk and his brother, Kimbal Musk, offloaded Tesla shares totaling $30 billion between late 2021 and the end of 2022. According to the lawsuit, this strategic sale preceded a company news release that negatively impacted Tesla’s stock price.
Allegedly, Musk sold these shares at inflated prices by obscuring his intentions of using the proceeds to acquire a social media giant, which he subsequently renamed X. Additionally, Musk is accused of offloading stock while aware that Tesla’s vehicle deliveries significantly underperformed against public forecasts.
Efforts to obtain comments from Musk and Tesla have yet to yield any response. As for the ERSRI, they hold approximately 140,000 Tesla shares, currently valued at around $24 million, with Tesla’s closing price at $170.66 this Tuesday. Notably, another Tesla shareholder, Michael Perry, had filed a similar lawsuit a month earlier, accusing Musk of insider trading involving $7.5 billion worth of Tesla stocks in late 2022.
This lawsuit arrives amidst a regulatory investigation into whether Musk violated federal securities laws in 2022 during his acquisition of Twitter stock. ERSRI’s lawsuit also highlighted Musk's alleged disloyalty to Tesla, citing instances where he allegedly redirected Tesla employees to work for X and facilitated Tesla's advertising expenditures on the platform following his purchase.
The fund’s general treasurer voiced concerns over Tesla’s board of directors not adequately supervising Musk’s potential conflicts of interest. Furthermore, accusations surfaced regarding Musk's efforts to assist xAI, another company he helms, by diverting Tesla-bound AI semiconductors to X and xAI. Recent revelations about these AI chip diversions have sparked worries that Musk might prioritize AI projects outside Tesla.
Responding to X, Musk remarked that Tesla lacked the facilities to store and activate Nvidia (NASDAQ: NVDA) AI processors. This statement may provide some context but doesn't completely dispel shareholder concerns.
As the situation unfolds, traders and analysts will closely watch how these legal challenges and internal governance issues impact Tesla’s market performance. Stay tuned for more updates on this brewing saga in the electric vehicle giant’s story.
