Elon Musk Tweet Triggers SEC Probe Into Possible Insider Trading
The Securities and Exchange Commission (SEC) is investigating Elon Musk and his brother, Kimbal Musk, for possibly violating insider-trading rules. The investigation stems from Kimbal selling some of his Tesla shares a day before Elon posted a poll on Twitter asking if he should sell 10% of his stock in the car company.
The poll that Elon posted on Twitter was posed in a way that selling his stock would cover any taxes he would need to pay if lawmakers required new taxes on unrealized capital gains. A day before the tweet was posted, Kimbal sold Tesla shares valued at approximately $108 million. The tweet garnered a 58% vote in favor of the multi-billionaire to sell. Elon followed up his tweet by selling billions of dollars worth of his stock in the electric-car company a few days later, which ultimately led to Tesla's stock falling sharply.
According to securities lawyers, one question that the SEC would have to answer is if Kimbal knew about his brother's plan to post the tweet the day after he sold his stock in Tesla, or if he learned of the tweet by other means before selling. Kimbal Musk serves on the board of directors for Tesla, so this would violate rules that generally prohibit employees and board members from trading on material nonpublic information.
Andy Pritchard, a law professor at the University of Michigan, makes the argument that the plans to sell stock belonged to Elon himself, and not to Tesla and its shareholders. If that is the case, it is uncertain whether insider prohibitions would be applicable to the situation involving Elon and Kimbal.
Pritchard stated, "What follows is that if the SEC wanted to pursue this, it would be a hard-fought question in court. If they decided to pursue it, Elon Musk would be willing to spend a little bit to pursue it in court."
This is not Elon's first rodeo when it comes to the SEC. Back in 2018 Musk found himself in a bit of hot water when the SEC accused him of misleading tweets. The tweets in question involved Elon stating that he had "funding secured" to take Tesla private at $420 as share. Following an investigation with the SEC, it was found that Musk had never discussed a going private deal and that his statement, which in turn caused Tesla's stock to rise sharply, constituted fraud.
Elon settled the SEC lawsuit out of court in 2018, by agreeing to pay $20 million, and resulted in Mr. Musk stepping down as chairman. Musk also agreed that he would preclear any tweets in the future that were deemed material to Tesla shareholders with Tesla's lawyers. This would lead one to believe that Elon had to clear his tweet regarding the poll he posted as well.
Even though the squabble in 2018 was settled, Elon continues to take jabs at the SEC. Just last week, a lawyer for Tesla accused the SEC of harassing Elon Musk with "serial investigations" of him and the company. The claim was made in a letter by lawyer Alex Spiro and filed with a federal judge that oversaw the 2018 settlement.
The SEC has questioned whether Elon has violated the pact by posting tweets about Tesla without having them being cleared by Tesla's lawyers. The company responded that the statements in question were not covered by the court judgment.
Elon Musk made his position clear on Twitter earlier this week when he posted, "I didn't start the fight, but I will finish it."