The Securities and Exchange Commission (SEC) is reportedly investigating whether stock sales by Tesla CEO Elon Musk and his brother, Kimbal Musk, violated insider-trading rules.
Launched in 2021, the probe is looking into shares sold by Kimbal valued at $108 million one day before Elon polled Twitter to see whether or not he should offload 10 percent of his stake in the company, suggesting he would run with the results. Though the tweet itself was a snide way of discussing proposals from Democrat legislators that would have imposed new taxes on unrealized capital gains, effectively money that doesn’t yet (and may never) exist.
Whether or not that’s fair is largely down to point of view. Some saw the plan as government overreach that risked pushing everyone but the super-rich out of the stock market. Musk, who was already footing the largest tax bill in the country, indicated that he felt the government isn’t entitled to anything else. But others thought it was just the ticket for increased tax revenue, noting that the largest payouts would come from the country’s biggest bankrolls.
Why is that so relevant in regard to the SEC investigation? Well, Tesla has repeatedly suggested that the organization is out to get it and its CEO. Musk suggested that the stock sale would be used to offset any money he would have to pay via unrealized capital gains. According to The Wall Street Journal, the company sees this as the government having its revenge.
Tesla has recently accused the SEC of harassing the company and its chief executive by repeatedly launching new enforcement investigations. The friction dates to a 2018 lawsuit in which regulators accused Mr. Musk of misleading investors with a tweet that said he could take the company private and had the funding to do so.
One question for regulators, according to securities lawyers, would be whether Mr. Musk told his brother about his upcoming tweet or about the timing of his sales before Kimbal Musk traded on Nov. 5 — or if Kimbal Musk otherwise learned of the poll and then traded. Kimbal Musk serves on Tesla’s board of directors.
Kimbal Musk’s trading could violate rules that generally prohibit employees and board members from trading on material nonpublic information. Employees and directors of public companies generally can’t buy or sell shares when they are aware of undisclosed material information.
I’ll be the first person to claim that the Biden administration and allied legislators genuinely seem to dislike Tesla. Despite being the world’s largest purveyor of all-electric vehicles (and American to boot), the White House has repeatedly snubbed the automaker when discussing its extremely ambitious EV plotting while embracing its rivals. Tesla has also seen an increase in the regulatory actions launched against it since Joe Biden took office. While some of that is undoubtedly the result of some genuinely misleading marketing language (e.g. Autopilot and Full Self Driving) or lackluster quality control, something tells me that Elon Musk’s aversion to having a unionized labor force and constant criticism of Biden’s Build Back Better Agenda played a factor.
But that doesn’t mean the CEO hasn’t been a bad boy. One could argue that his constant talk surrounding cryptocurrencies knowingly moved the market in ways that allowed him to profit directly and his public speculation about the Tesla stock is definitely worthy of a few raised eyebrows. Then again, blatant examples of insider trading are also rampant in the U.S. Congress and you don’t often see the SEC coming after those people no matter which side of the aisle they’re on.
It’s also not abundantly clear how the SEC is going to prove any criminal wrongdoing. While Tesla is publicly traded, the stock was technically Elon’s to do with as he wished. The Securities and Exchange Commission would presumably need to prove that there was some level of plotting between the Musk brothers for further action to be taken. However, the Tesla CEO told the Financial Times on Thursday that Kimbal was totally unaware that he planned to conduct the Twitter poll while confirming the company’s lawyers knew about it.
Elon has been fighting with the SEC pretty consistently since 2018 and the pressure only seems to have been ratcheted up recently. The regulator seems perpetually annoyed with his social media presence, especially when he shares something before running it by his lawyers. But those same lawyers have been accusing the SEC of launching serial investigations into Tesla and leaking sensitive information that was supposed to remain private.
The bottom line: Elon Musk probably plays things a little too fast and loose via social media (e.g. “funding secured”) and the SEC probably plays favorites.
[Image: Naresh111/Shutterstock]
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