Tesla investor accused Elon Musk of insider trades worth $7.5B

• Tesla investor Michael Perry sued Elon Musk for insider trading.
• He accused Musk of selling $7.5B worth of Tesla stock, knowing the company would miss Q4 targets.
• The stocks would be worth 55% less if Musk sold them after the Q4 results were released, he alleged.

A Tesla investor accused Elon Musk of using insider information on his company to sell $7.5 billion worth of Tesla stock in 2022, according to a lawsuit filed Thursday in Delaware Chancery Court.

The investor, Michael Perry, alleged in his suit that Musk knew Tesla would miss fourth-quarter expectations that year on vehicle deliveries and sold $7,530,113,926 worth of Tesla stock in November and December 2022 before the financial report was made public in January 2023.

The suit alleged that Musk’s trades “would have netted him less than 55% of the amounts realized” had they been made after the quarter results were released to shareholders.

“Musk’s insider profits for his November and December sales were approximately $3 billion based on the January 3, 2023 closing price of $108.10 per share,” the lawsuit alleged.

Attorneys for Perry and Musk did not immediately respond to a request for comment.

Perry alleged in the lawsuit that Musk must have had access to information on his company that was not yet available to the public, which led to his stock sales.

The lawsuit cited statements Musk made later on in a 2023 earnings call, during which the Tesla CEO said the company has a “daily real-time update of how many cars were ordered yesterday, how many cars were produced yesterday” and that the data “does not have latency” or delays.

In addition, the lawsuit alleged that “a change in Tesla’s production and delivery logistics” at the time should have made it more likely that Musk had access to material non-public information on Tesla’s fourth-quarter production and delivery numbers.

Perry also accused Musk of misleading shareholders about what to expect in the fourth quarter of that year in an October 2022 earnings call.

“So, Q4 is looking extremely good,” Musk said in the call, according to a transcript published by The Motley Fool.

“I can’t emphasize enough,” Musk also said, “We have excellent demand for Q4, and we expect to sell every car that we make for as far in the future as we can see.”

Musk’s Larry Ellison moment?

Shareholders can launch a derivative lawsuit against a company’s directors if they believe a breach of duty has occurred.

A notable case came in 2001 when Larry Ellison, then the CEO of Oracle, was accused of selling nearly $900 million worth of shares before his company revealed it would not meet earnings expectations, The New York Times reported.

Ellison settled and agreed to pay $100 million to charity, according to the report.

James Park, a securities regulation expert at the University of California, Los Angeles, told Business Insider that these lawsuits are not uncommon but often dismissed at an early stage.

“But in some cases, like Ellison’s, courts refuse to dismiss the case and then there is an incentive to settle rather than risk trial,” he said.

Musk has been accused of insider trading before.

Last year, a group of investors filed a class-action lawsuit against the billionaire, accusing him of manipulating the price of Dogecoin, the Shiba Inu emblazoned cryptocurrency.

The lawsuit, which was filed in June 2023, is still ongoing.

Musk is also fighting to retain a $55 billion pay package after the chancellor of the Delaware Chancery Court, Kathaleen McCormick, struck down the agreement in January. McCormick, described by a colleague as “unflinching” and having a record of siding with sellers in company acquisitions, will also review Perry’s lawsuit.

McCormick’s ruling has caused Musk to sour on Delaware and has been pitching a move for Tesla to be incorporated in Texas.

Since the pay package was sunk, investment funds, shareholders, and a proxy advisory firm also have urged Tesla investors to vote against reinstating Musk’s deal.

Investors will meet on June 13 to vote on the package and a proposal to move Tesla’s incorporation state from Delaware to Texas.