Fresh scrutiny. Elon Musk and his brother Kimbal Musk reportedly being investigated by the SEC for alleged insider trading
The US Securities and Exchange Commission (SEC) is reportedly investigating Tesla CEO Elon Musk and his brother Kimbal Musk over recent stock sales.
According to the Wall Street Journal, which cited people familiar with the matter, the SEC is investigating whether stock sales by both men “violated insider trading rules”.
The WSJ report said the investigation began last year after Kimbal Musk sold Tesla shares valued at $108 million, one day before Elon Musk had polled Twitter users, asking whether he should offload 10 percent of his stake in Tesla.
Kimbal Musk did not know about the Twitter poll ahead of it, Elon Musk told the Financial Times in an email, adding that his lawyers were “aware” of the poll.
The SEC reportedly issued a subpoena on 16 November, ten days after Musk’s poll, seeking information related to some financial data.
Tesla’s stock has fallen about 33 percent since Musk began selling billions of dollars worth of shares on 8 November.
Tesla shares are currently trading at $800.77, as of Friday morning. Before Elon Musk’s Twitter poll last November, Tesla shares were trading as high at $1,229.
Elon Musk’s share sales in November were automatically executed according to a trading plan he had created on 14 September, a filing disclosing share sales revealed, including stock options that were supposed to expire in 2022.
News of the SEC share sale investigation comes after Elon Musk and Tesla publicly accused the SEC last week of ‘unrelenting harassment’ in a New York courtroom.
The SEC responded to US District Judge Alison Nathan in Manhattan and argued that Tesla was not following proper procedures.
It is fair to say that Musk has a fractious relationship with the US financial watchdog, and he did not exactly endear himself to the SEC after he publicly attacked the watchdog on multiple occasions.
In October 2018 for example Musk tweeted that the US agency was the “shortseller enrichment commission.”
Then in December 2018 Musk publicly admitted that he had “no respect” for the SEC.
Worse was to come in July 2020 when Musk tweeted: “SEC, three letter acronym, middle word is Elon’s.”
And the feeling is mutual, with some federal officials feeling that Musk got away lightly in the SEC’s agreement with Tesla.
In May 2019 SEC commissioner Robert Jackson made a rare public statement, stating he did not support the agreement reached between Musk and the SEC – citing Musk’s conduct.
Judge Alison Nathan presides over that 2018 SEC settlement with Tesla and Elon Musk.
The need for the agreement dates back to August 2018, when Elon Musk unexpectedly tweeted that he was considering taking Tesla private and that he had secured funding to do so.
Tesla stock then went into a period of unusual volatility and the privatisation deal never materialised.
As a result, Musk was almost immediately hit with two lawsuits which alleged that Musk’s tweets were fraudulent effort to attack short sellers.
A further lawsuit was added last November, when investment bank JPMorgan Chase also sued Tesla for $162 million, alleging Elon Musk’s privatisation tweet in 2018 cost it millions of dollars.
Those privatisation tweets brought Musk to the attention of the SEC, which accused Musk of securities fraud, and alleged he made a series of “false and misleading” tweets about potentially taking Tesla private.
Indeed, the SEC sought to ban Elon Musk from acting as an officer or director of a publicly traded company.
But in the end, the US financial regulator forced Musk to step down as chairman of Tesla and pay $20m in penalties.
In addition, Tesla itself also had to pay a $20 million penalty.
Musk however was allowed to retain the CEO role.
As part of that deal, Musk had to submit any public statements (including tweets) about the company’s finances to vetting by its legal counsel before publishing them.
Last June the SEC also notified Tesla that two of Musk’s tweets from 2019 and 2020 – one about Tesla’s solar roof production volumes and one about the company’s stock price – hadn’t received the required pre-approval.