US regulators are investigating whether recent stock sales by Tesla CEO Elon Musk and his brother, Kimbal Musk, violated insider-trading rules, The Wall Street Journal reported on Thursday.
The investigation began in 2021, after Musk and his brother sold $108 million worth of Tesla shares, according to the Journal.
The sale happened the day before Elon Musk polled his nearly 75 million Twitter followers about whether he should sell his 10% stake in the company, promising to abide by the poll’s results.
Once the November 6, 2021 Twitter poll closed, it was clear his followers wanted him to sell his shares — 57.9% voted “yes” and 42.1 percent voted “no” — and that caused Tesla’s stock price to fall sharply.
Elon Musk, brother insider trading investigation
Kimbal Musk, who sits on Tesla’s board of directors, sold 88,500 shares one day before his brother tweeted the poll. US insider trading laws prohibit employees and board members from trading based on information that has not been made public, which is what investigators are trying to determine at the present time.
Even though employees and board members can avoid insider trading charges using a program known as 10b5-1, which allows trading at predetermined times, a November 5, 2021 disclosure regarding Kimbal Musk’s shares sell-off, before his brother’s Twitter poll, did not indicate he was using that program.
In interviews with securities law experts, the Journal noted that regulators will likely be looking into whether Elon Musk told his brother about the poll or potential sale before Kimbal sold his shares on November 5, or if he otherwise learned of the poll and then traded.
On Thursday, Musk tweeted that he was “building a case” against the SEC, declaring “I didn’t start the fight, but I will finish it.”
Not the first time Elon Musk under investigation
In recent weeks, Elon Musk has been at war with the SEC over previous investigattions, including his claim the organization was attempting an “unconstitutional power grab,” which led the agency to argue he was in “blatant violation” of a settlement he made.
Musk has accused the agency of subjecting him and his company to “endless, unfounded investigations.” He also alleged that the agency was ignoring its commitment to distribute $40 million in monies from fines to Tesla shareholders, as per the 2018 settlement.
Musk also claimed the SEC was leaking information regarding federal investigations, without providing any specific evidence they were doing so.
In 2018, Musk tweeted about his intention to take Tesla private, infamously declaring that “funding (was) secured.” After Musk sent the tweet, the SEC launched an investigation, eventually concluding that Musk misled investors about his plan.
One year later, in 2019, Tesla and the SEC agreed that Musk’s tweets about Tesla should be subject to more oversight, with a company lawyer designated to pre-approve his tweets about Tesla’s financial health — estimated or otherwise — as well as other specific subjects.
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