Elon Musk is facing a lawsuit from an institutional shareholder accusing him of reaping billions in profits through alleged insider trading of Tesla stock. The lawsuit, filed on Tuesday by the Employees’ Retirement System of Rhode Island (ERSRI), demands that Musk return the “unlawful profits” gained from these transactions.
The lawsuit comes at a critical juncture, just two days before a pivotal vote by Tesla shareholders on whether to reinstate Musk’s $56 billion pay package. This package was previously voided by a Delaware judge in January, who ruled that Musk had improperly influenced the decision-making process.
According to the lawsuit, Musk and his brother, Kimbal Musk, a Tesla director, sold $30 billion worth of Tesla stock between late 2021 and the end of 2022. The ERSRI claims that these sales were made using insider information, allowing the Musks to cash in before the stock price dropped due to public disclosure of unfavorable news.
The ERSRI alleges that Musk sold shares at inflated prices by concealing his intention to use the proceeds to acquire the social media platform Twitter, now rebranded as X. Additionally, the lawsuit claims Musk sold Tesla stock knowing that Tesla’s vehicle deliveries had significantly underperformed public projections.
This lawsuit is not an isolated case. Michael Perry, another Tesla shareholder, filed a similar suit late last month, accusing Musk of insider trading after selling over $7.5 billion in Tesla shares in late 2022. Both lawsuits underscore a broader concern about Musk’s actions and their impact on Tesla’s stock value and shareholder trust.
In response to the ERSRI’s filing, neither Musk nor Tesla provided comments.
The ERSRI, which holds approximately 140,000 shares of Tesla, valued at about $24 million, expressed concerns about the lack of oversight from Tesla’s board regarding Musk’s potential conflicts of interest. The fund’s general treasurer emphasized the need for the board to address these issues to protect shareholders’ interests.
The lawsuit also accuses Musk of diverting Tesla resources for the benefit of X and his other ventures. It claims Musk directed Tesla
employees to work at X and facilitated Tesla’s payment for advertising on Twitter after his acquisition. Furthermore, it alleges that Musk assisted his AI venture, xAI, in hiring Tesla employees and redirecting AI semiconductors intended for Tesla to X and xAI.
These allegations come amid a regulatory investigation into whether Musk violated federal securities laws when he purchased Twitter stock in 2022. The ERSRI lawsuit amplifies concerns that Musk’s actions may have been detrimental to Tesla, suggesting disloyalty to the company.
News last week that AI chips meant for Tesla were diverted to other Musk ventures raised additional red flags about his priorities. Musk responded to these concerns on X, claiming that Tesla lacked the capacity to store and utilize the Nvidia AI processors.
The legal battles and ongoing regulatory scrutiny place Musk in a contentious position, as shareholders and regulators question the transparency and legality of his actions. The outcome of these proceedings and the upcoming shareholder vote will likely have significant implications for Tesla’s governance and Musk’s leadership.
