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Elon Musk and brother, a Tesla director, face insider-trading investigation

 2 years ago
source link: https://arstechnica.com/tech-policy/2022/02/sec-probes-elon-musk-and-brother-for-possible-insider-trading-of-tesla-stock/
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Tesla vs. SEC —

Elon Musk and brother, a Tesla director, face insider-trading investigation

Musk denies passing information to his brother, Kimbal, a member of Tesla's board.

Jon Brodkin - 2/25/2022, 5:03 PM

Kimbal Musk on stage at a conference, wearing a cowboy hat.

Enlarge / Kimbal Musk at the ETHDenver conference in Denver, Colorado, on Friday, Feb. 18, 2022.
Getty Images | Bloomberg

The Securities and Exchange Commission is investigating whether Tesla CEO Elon Musk and his brother, Kimbal Musk, violated insider-trading rules with recent stock sales, The Wall Street Journal reported yesterday.

"The SEC's investigation began last year after Kimbal Musk sold shares of Tesla valued at $108 million, one day before the Tesla chief polled Twitter users asking whether he should unload 10 percent of his stake in the electric-car maker and pledging to abide by the vote's results," the Journal wrote.

Separately, a US judge yesterday denied Tesla and Musk's various requests related to their claim that the SEC is "harassing" the company and its CEO. (More on that later in this article.)

Musk's Twitter poll in November 2021 received 3.5 million votes, with nearly 58 percent of respondents agreeing that Musk should sell 10 percent of his Tesla stock. Musk's poll question said, "Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10 percent of my Tesla stock. Do you support this?"

The results indicated that Musk's "tweet was viewed as negative news," and Tesla "shares fell sharply in the wake of Mr. Musk's poll," the Journal noted. Elon Musk both sold and bought large amounts of Tesla stock over the ensuing weeks.

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Musk denied passing information to brother

Kimbal Musk serves on Tesla's board of directors, and his "trading could violate rules that generally prohibit employees and board members from trading on material nonpublic information," yesterday's Journal report said. SEC regulators could look into "whether Mr. Musk told his brother about his upcoming tweet or about the timing of his sales before Kimbal Musk traded on November 5—or if Kimbal Musk otherwise learned of the poll and then traded."

Whether this constitutes illegal insider trading "would be a hard-fought question in court," University of Michigan law professor Adam Pritchard told the Journal.

Elon Musk denied passing along advance information about the poll to his brother. "Kimbal had no idea I was going to do a Twitter poll," Musk told the Financial Times in an email. Musk also told the news organization that Tesla lawyers were "aware" of his plan to conduct the Twitter poll.

"The idea that I would care about whether my brother might sell shares for a few million dollars less when my Twitter poll caused my own share sale to be over a billion dollars less is utterly absurd," Musk said, according to the FT report. Musk also claimed the SEC investigation is "simply more evidence of Stevie grinding his very tiny axe yet again," a reference to SEC official Steven Buchholz, an assistant regional director for enforcement.

"I didn't start the fight, but I will finish it," Musk wrote on Twitter on Wednesday in reference to the Tesla/SEC battle.

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