Elon Musk, His Brother Under Investigation Over Alleged Insider Trading - Reports

© REUTERS / MIKE BLAKESpaceX owner and Tesla CEO Elon Musk listens during a conversation with legendary game designer Todd Howard (not pictured) at the E3 gaming convention in Los Angeles, California, U.S., June 13, 2019.
SpaceX owner and Tesla CEO Elon Musk listens during a conversation with legendary game designer Todd Howard (not pictured) at the E3 gaming convention in Los Angeles, California, U.S., June 13, 2019.  - Sputnik International, 1920, 25.02.2022
The investigation into the Musk brothers’ stock sales was prompted by Kimbal Musk’s decision to sell shares of Tesla for $108 million, just a day before Elon Musk, the founder of Tesla, asked his Twitter followers if he should sell 10% of his Tesla shares.
The US Securities and Exchange Commission (SEC) is investigating whether recent stock sales by Elon Musk and his brother Kimbal Musk violated insider-trading rules, The Wall Street Journal reported Thursday.
“Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,” Musk’s tweet from November of last year reads. A majority of followers voted “yes.”
Musk’s efforts to sell his shares have little to do with a fun social media interaction with followers, and more so to do with a threatening $11 billion tax bill Musk is responsible for paying.
A day before the tweet from Elon Musk, his brother Kimbal Musk reportedly sold 88,500 shares of Tesla stock.
This had led investigators to question whether or not Elon Musk told his brother about the timing of his sales before Kimbal traded on November 5. Kimbal Musk serves on the board of directors at Tesla and SpaceX, but his main focus for business is in the restaurant industry as a restaurateur and chef.
His trading could potentially violate restrictions that do not allow employees or board members to trade information that is not available to the public. “Material nonpublic information” is any information that may change or impact the price of a company’s stocks. The consequences for this crime can include a jail sentence.
Tesla and SpaceX Chief Executive Officer Elon Musk listens to a question as he speaks at the SATELLITE Conference and Exhibition in Washington, Monday, March 9, 2020 - Sputnik International, 1920, 17.02.2022
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According to securities filings, Kimbal has avoided any consequences for insider trading thus far by using a plan known as 10b5-1, under which individuals in the stock market may sell a predetermined number of shares at predetermined times.
Since 2011, Kimbal Musk has made more than 40 sales under the 10b5-1 plan, according to regulatory filings. But the SEC did not receive any reports that Musk used such a plan for his sales in November. It did, however, say that he sold 88,500 shares, donated 25,000 to charity, and still owns 511,240 shares.
The SEC issued a subpoena ten days after Musk’s bizarre Twitter poll, seeking information in regards to financial data. The price of Tesla’s shares have fallen 33% since he began selling in November.
This is not the first time Musk has gone to battle with the SEC. In a similar incident in 2018, Musk wrote a tweet in which he said he had secured funding to make Tesla a private company. The SEC said that Musk never disclosed that information prior to his tweet, and the resulting increase in his company’s stock prices constituted fraud.
Musk and the SEC settled the lawsuit, with Musk having to pay $20 million and agreeing to step down as chairman of the company.
Since then, Musk has continued to have an antagonistic relationship with the SEC. A lawyer for Tesla wrote in a letter last week that the SEC was “harassing” Musk and his company with their investigations.
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