Tesla (NYSE: TSLA) CEO Elon Musk is facing a lawsuit over his infamous “taking Tesla private” tweet of 2018. The mercurial CEO’s troubles could compound if authorities investigate his 2022 stock sales.
In 2018, Musk tweeted that he has “secured funding” to take Tesla private at $420 per share. Tesla stock soared after the tweet but as things turned out Musk did not take the company private and had not “secured” the funding.
After the controversial tweet, Musk had to resign as Tesla’s chairman and both he and Tesla paid a fine of $20 million each to the SEC. Musk was also supposed to be careful about tweeting price-sensitive information. However, even after the settlement, Musk continued to tweet almost freely and in many cases, his tweets impacted the price action of the stock.
For instance, in 2020, Musk tweeted that he finds the stock price too high. The stock corrected after Musk’s tweet. Last year, Musk tweeted that he is buying Manchester United but he cleverly clarified before the market opened that it was a joke.
His tweets have in the past influenced the price actions of cryptocurrencies like Bitcoin and Dogecoin. Dogecoin incidentally saw renewed interest from traders after Musk, who is the self-proclaimed “dogefather” acquired Twitter. There is a guide on buying Dogecoins.
On his part, Musk has defended his tweets and said, “Just because I tweet something doesn’t mean people believe it.” His testimony would meanwhile continue next week and if the judge finds him guilty, he could be liable to pay billions of dollars in fines.
Elon Musk Faces Class Action Lawsuit Over Taking Tesla Private Tweet
Musk now faces a class action lawsuit over his 2018 tweet as Tesla stockholders claim that they suffered losses due to the alleged misleading tweet. Musk says that he believed that Saudi Arabia’s sovereign wealth fund PIF (Public Investment Trust) agreed to back the deal.
However, the PIF backed out of the deal. Later in 2018, PIF invested in EV (electric vehicle) startup Lucid Motors which is run by Peter Rawlinson, a former Tesla employee. PIF also participated in Lucid Motors PIPE (private investment in public equity) round during the 2021 SPAC merger.
Last year, an affiliate of the PIF invested around $900 million in Lucid Motors. PIF is the leading investor of the EV company now. There is a guide on buying Lucid Motors stock.
Musk Sold Billions of Dollars of Tesla Stock Since 2021
In 2021, Musk held a Twitter poll on whether he should sell 10% of his Tesla shares. After the poll results, he started selling Tesla shares and the selling continued in 2022 even as Musk said earlier in the year that he was done selling the shares.
He sold around $39 billion worth of shares since November 2021 including $23 billion in stock sales in 2022. The Wall Street Journal reported that Musk sold around 22 million Tesla shares between December 12-14.
That month eventually turned out to be the worst ever for Tesla and it cumulatively lost 65% in 2022. Musk sold shares at an average price of $163 per share and the transaction happened weeks before the company released its Q4 delivery report which missed estimates.
Musk Sounded Bullish on Demand for TSLA Cars
During the Q3 2022 earnings call, Musk said, that the fourth quarter is looking “extremely good” and the company would have an “epic” end to the year.
He also refuted that Tesla would lower production. Musk said, “we’re very pedal to the metal come rain or shine. So, we are not reducing our production in any meaningful way, recession or not recession.”
As things turned out, TSLA closed the China Gigafactory in December which the company attributed to plant maintenance. However, not many bought the argument and instead saw it as a sign of a demand slowdown.
The fears were corroborated when recently Tesla lowered car prices in not only China but also the US and Europe.
Musk Sold Tesla Shares at the “Right” Time
In hindsight, Musk sold Tesla shares at just the right time as the stock continued to plummet thereafter. While there is nothing yet to suggest that Musk acted on non-public information, James Cox, a securities-law professor at Duke University said, “this should be of great interest to the SEC.”
He added, “The issue here is, what did he know and what was the market anticipating when he sold? That’s a critical moment.”
Musk never shared a good rapport with the SEC and rechristened the institution as a “short seller enrichment commission.”
Donald Langevoort, a securities-law professor at Georgetown University also echoed Cox’s views. He said, “Is it suspicious? Yes. Is it entirely possible there are other explanations? Of course. But that’s what the enforcement process is all about.”
If the SEC decides to investigate Musk’s 2022 Tesla stock sales, it would be yet another legal challenge for the billionaire who last year lost his title as the world’s richest person.
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