Insider trading investigation against Elon Musk’s brother and sister


The Wall Street Journal quoted unnamed sources who said that an investor watchdog agency was looking into Tesla share sales. Kimbal Musk is a Tesla board member and announced that he would sell 10%. Tesla (TSLA)In the days following, shares fell sharply.

Tesla didn’t respond to our request for comment. CNN Business also hasn’t confirmed this investigation.

The Financial Times reports that Musk has denied any wrongdoing. He told the newspaper that there is more evidence to show that Stevie continues grinding his tiny axe.

It refers, apparently, to Steven Buchholz who works in San Francisco for the SEC and is involved with enforcement cases against Musk or Tesla.

Musk’s lawyers filed a Monday complaint alleging there were leaks from the SEC in its probe of Musk. They did not specify what leaks they revealed. The Journal published the story on Thursday that revealed the results of the probe.

According to reports, the investigation centers around Kimbal Musk’s November sale of 88.500 Tesla shares, which earned him nearly $109million.

These shares made up about 15% of Tesla’s stake at that time. Kimbal Musk regularly sells shares of the company, unlike his brother Elon.
On Saturday, November 6 — the day after Kimbal Musk sold his shares — Elon Musk posted a poll on Twitter asking whether he should sell 10% of his shares. Musk tweeted that the sale would help to address critics about his income taxes, even though he is the most wealthy person in the world. But the main reason for the sale was not the Twitter Poll, it was the fact Musk had to exercise stock options set to expire next August. A move which would result in significant taxable income.
Musk does not receive a salary, bonus or cash compensation from Tesla. He is paid through stock options which are taxable only when they’re used to buy shares.
In a Twitter poll, his followers strongly supported the sale. Elon Musk began to sell shares on Monday November 8. Tesla shares fell by 5% the day after Musk sold his shares. This happened because some saw it as lack of faith and that large sales put down pressure on its stock price. By itself Musk’s sales that day — 934,000 shares valued at $1.1 billion — amounted to about 3% of Tesla shares traded.

Kimbal Musk could have earned $5.8 million more if he had not waited to sell his shares before his brother. If they are privy to material information, which could impact the stock’s price, company insiders (e.g., board members and executives) cannot trade.

The question of whether Elon Musk’s decision to exercise options and to sell shares or his plans for a Twitter survey would be company information that is subject to Insider Trading Rules remains unanswered.

Elon Musk stated that “Kimbal didn’t know I would do a tweet poll.” Elon Musk added, “The notion that I care whether my brother sells shares for a few millions less than mine when my tweet poll causes my share sale to exceed a billion is completely absurd.”

Elon Musk accuses the SEC of illegally leaking details of its Tesla investigation
Musk had options to purchase 22.9 million shares, and then sell 15.7 million shares at $16.4 billion between November 8th and December 31st. Many of the sales went to paying withholding taxes for exercising options. Unidentified charities also received shares in the amount of $5.7 billion.
Musk has been long critical of the SEC and is currently suing them. After Musk claimed he had “funding secured”, Musk and the agency came to an agreement in 2018.
Musk eventually abandoned plans to sell the company. Tesla shares are now worth almost 10 times what Musk wanted to buy to make it private.
Musk had to relinquish his title of Tesla chairman in 2018 under a consent decree. He still held the title of CEO. Each of them were fined $20 million and Musk had his tweets regarding material company information reviewed before they were posted. According to his comments to the Financial Times, Musk stated that company lawyers knew he would be conducting the twitter poll to sell his shares.

Matt McFarland contributed this report.

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