You Shouldn't Be Shocked That Musk Is Being Sued Over Insider Trading
You Shouldn't Be Shocked That Musk Is Being Sued Over Insider Trading
He has a history.
Musk has a track record of being a bit wild when it comes to his investments. Anyone who paid attention to his acquisition of Twitter will know this well. He skirts the law and tries to game the system. Sometimes, he comes out on top, and other times, he gets caught red-handed. Well, it seems like Musk just got caught. Michael Perry, a Tesla shareholder, is suing Musk for insider trading. According to Michael, Musk sold $7.5 billion worth of Tesla stock right before the company’s fourth-quarter numbers were made public on Jan 2, 2023, which detailed how badly Tesla had missed their sales and delivery target, plummeting its stock price. As such, Michael claims Musk “improperly benefited” by $3 billion in insider trading profits, robbing Tesla shareholders. But should we really be surprised?
Let’s start by defining insider trading. The U.S. Securities and Exchange Commission (SEC) defines illegal insider trading as “”the buying or selling of a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, non-public information about the security. As you can imagine, CEOs of large companies with shares in said company can effortlessly partake in insider trading.” Sometimes, even accidentally. As such, these CEOs, company boards and advisors typically work together to ensure any trades they make are clean.
As such, Musk selling $7.5 billion of Tesla shares in November and December 2022, just a month before the crippling quarterly report came out, is highly suspicious. Until that point, the public thought Tesla was on a roll. Its cars had broken sales records, and its profit margins were by far the largest in the EV world. When Tesla set themselves sky-high sales, delivery and revenue targets for the end of 2022, investment banks, private investors and the general public believed them. The 2022 Q4 report, which parts came out early on Jan 2nd 2023, shattered that notion, showing that Tesla had missed its sales target by a vast margin and its profit margin had also taken a significant hit. Musk knew that Tesla’s share price would tank as soon as the 2022 Q4 report was released, and as such, he knew that selling this stock before the news broke meant he would be selling at the peak of Tesla’s value.
So, yes. Musk appears to have done a textbook case of insider trading here.=
Michael’s lawsuit actually details that if Musk had just waited another month to sell, he would have profited 55% less.
But why should we care? Well, the people and institutes who bought the shares that Musk sold were massively done over. The sale was, in effect, fraud. But it also affects the wider market. Thanks to supply and demand, if a larger shareholder liquidates billions worth of shares just before the stock takes a hit, it can further suppress the stock price by weakening the stock. Whereas, if they held on until the public is operating on the same information as they are, they are less likely to sell, as they won’t profit anywhere near as much, and as such, help the stock keep its value. As such, if you are a Tesla shareholder, then Musk’s insider trading has lowered the value of your investment while running away with billions in profit.
As I alluded to earlier, this is not the first time Musk has tried to gain the system in this way. For example, he temporarily changed the Twitter logo to the Dogecoin Shiba Inu logo, leading many to believe Twitter would be the first large company to accept Dogecoin as payment. Understandably, this inflated the price of Dogecoin by 30%. However, during this period of inflation, a Dogecoin wallet linked to Musk sold $124 million worth of the coin before the logo changed back, and the price of Dogecoin dropped. Again, screwing buyers out of their investment.
Musk has even done this type of thing with Tesla before. In 2018, on April Fools, Musk posted a Tweet pretending Tesla had gone bankrupt, which was a real possibility back then as the Model 3 crippled Tesla’s finances. Subsequently, the stock price nose-dived. From May to October of that year, with the stock still yet to properly recover, Musk bought $45 billion worth of Tesla shares. Later that year, Musk claimed that he had secured enough finance to take Tesla private at $420 per share, which was way above the market price at the time, pushing up the stock price as people bought up to make a profit. He later revealed it wasn’t going ahead, which caused the stock to crash lower than it initially was. A few months later, he bought $10 million of Tesla stock right before they started to recover. As Musk hadn’t followed SEC protocol, he was found guilty of securities fraud, and he and Tesla were fined $20 million.
I think people forget this: Musk has been convicted of securities fraud before! Almost all of his purchases and sales of Tesla stock happened around suspicious media and public information manipulation by Musk/Tesla. But it’s far more than that; Musk has repeatedly shown he doesn’t care for the public, whether he is committing massive levels of fraud, selling deadly AI, breaking FAA rules, or treating employees horrifically, as long as it is lining his pocket with green, he doesn’t care. So we shouldn’t be surprised by Michael Perry’s lawsuit, and no matter which way this lawsuit goes, we shouldn’t expect Musk to stop this trend of damaging behaviour.
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Sources: Forbes, CNA, BT, Investopedia, Yahoo, The Independent, CNBC, Tesla, CNBC, Reuters, CNN