Tesla Shares Headache: Elon Musk Under Investigation After $108 Million Sale, Billionaire Fires Back at SEC

Elon Musk is in trouble for potentially violating insider trading rules over the recent sale of his Tesla shares.

It's not just him, either. The U.S. Securities and Exchange Commission (SEC) is also investigating Musk's brother, Kimbal Musk, for the same reason, The Wall Street Journal reported.

The investigation began in late 2021, when Elon and Kimbal sold $108 million worth of Tesla shares after the elder Musk followed through his promise of selling 10 percent of his stake in the company. According to Elon, the money from the stock sale would be used to cover any and all expenses he would gain should the U.S. Congress impose new taxes on unrealised capital gains.

However, the younger Musk, who is in Tesla's board of directors, also sold some of his shares on the day before Elon sold his own--something that wasn't made public at the time. This nondisclosure of his intent to sell stock was in violation of insider trading laws.

The Broken Insider Trading Law

According to the SEC's online archives, material inside information-- those that could reasonably affect the value of a company's stock or affect the investment judgement of a person deciding to buy or sell stock once known--is "nonpublic" if it has not been disclosed to the public generally. For information to be considered public, there should be evidence that the information was widely shared and that the investing public had time to absorb the information.

Kimbal's case was no different. Although he could have avoided breaking insider trading laws through the 10b5-1 program, as he had done so in the past, his disclosure regarding the selling of shares before Elon's did not indicate he was using that program.

Under the program's rules, corporate insiders that wish to trade their own equity as part of a pre-announced portfolio management plan must declare in advance when and how they plan to trade to avoid breaking insider trading laws, per a CNBC report.

Elon said in his email to the Financial Times that although Kimbal did not know about the Twitter poll ahead of his selling of shares, Kimbal's lawyers were. He also added that a settlement with the SEC wherein Kimbal's public statements about Tesla's finances and other topics are to be vetted by its legal counsel exists, as per Reuters.

Elon Musk's Reponse

Elon has been a fervent opponent of the government even before the Biden administration came into office, calling the goverment "the ultimate corporation" and demanding it to "get out of the way" to let companies innovate in 2020, per a CNBC article. He also called for the removal of government subsidies in December 2021, saying that the country has "spent so much money... the federal budget deficit is insane", as the The Verge noted.

Elon's recent spat with the SEC isn't the first time either. Both parties almost came to a head in February 2019 when the SEC requested a federal judge to hold Musk in contempt for sending a tweet that seems to violate Tesla's and the Commission's agreement regarding his tweets, while Musk said that the SEC's move was an "unconstitutional power grab" (as stated in a separate article from The Verge).

Although the two sides were ordered to work things out, Elon's negative disposition with the SEC remains to this day. In his recent tweets, the Tesla CEO said that he is already been building a case on the level of corruption the SEC has, and that he intends to finish the fight the SEC started with him in the same Twitter thread.

Elon also agreed with another Twitter user that the Commission is likely cooperating with Wall Street hedge funds.