Tesla $16B Stock Sale lawsuit : Linked to Twitter Purchase

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Tesla $16B Stock Sale lawsuit
NEW YORK, NY - JULY 05: The inside of a Tesla vehicle is viewed as it sits parked in a new Tesla showroom and service center in Red Hook, Brooklyn on July 5, 2016 in New York City. The electric car company and its CEO and founder Elon Musk have come under increasing scrutiny following a crash of one of its electric cars while using the controversial autopilot service. Joshua Brown crashed and died in Florida on May 7 in a Tesla car that was operating on autopilot, which means that Brown's hands were not on the steering wheel. (Photo by Spencer Platt/Getty Images)

A Tesla shareholder has sued Elon Musk over his 2021 sale of $16 billion worth of stock, claiming the billionaire profited by concealing his intent to buy Twitter. The lawsuit, filed by the Employees’ Retirement System of Rhode Island, alleges Musk’s actions violated his fiduciary duties to Tesla shareholders.

Claims Against Musk and Tesla’s Board

Filed with the Delaware Chancery Court on Monday, the 250-page suit accuses Musk and his brother Kimbal, a Tesla director, of breaching their fiduciary duties. The state retirement system argues that Tesla’s board lacks independence and failed to hold Musk accountable for his actions.

The lawsuit claims Musk misled the market by tweeting in November 2021 that he would sell 10% of his Tesla stock if Twitter users voted in favor. However, evidence suggests he intended to sell the shares regardless to cover $11 billion in taxes and to purchase Twitter shares. The poll ultimately supported Musk’s decision to sell the stock.

Tesla $16B Stock Sale lawsuit  : Alleged Misleading Statements and Stock Sales

“Musk’s misleading statements about his reasons for selling Tesla stock violated his duty of loyalty, which required all Tesla directors to speak honestly and in good faith,” the suit states. It claims Musk sold $16 billion worth of Tesla stock at inflated prices, and Kimbal Musk sold 15% of his shares just before the Twitter poll. The lawsuit alleges that the brothers would have made $2 billion less if they had sold their shares after Musk’s plan to buy Twitter was public.

Tesla $16B Stock Sale lawsuit : Motivations Behind the Twitter Purchase

The suit also argues that Musk bought Twitter partly to reverse mitigation measures against COVID-19 misinformation. After taking over Twitter, Musk stopped enforcing these policies and made tweets critical of Anthony Fauci. Additionally, Musk had publicly opposed Trump’s Twitter ban following the Jan. 6 Capitol riot and reversed the ban shortly after acquiring the platform.

SEC Involvement and Code of Ethics Violations

The U.S. Securities and Exchange Commission subpoenaed Musk and Tesla in November 2021 regarding the poll. Tesla then revised its code of business ethics to restrict Musk’s investments and activities. However, the suit alleges Musk violated this code by spending $2.6 billion to buy 9% of Twitter’s stock and failing to obtain a waiver from Tesla’s board before offering to buy all of Twitter’s outstanding stock.

Tesla $16B Stock Sale lawsuit  : Continued Breaches and Board Failures

The lawsuit claims Musk continued to breach Tesla’s code of ethics by serving as Twitter’s principal executive, which hindered his performance as Tesla’s CEO. It also accuses Musk of moving Tesla employees to work for Twitter and failing to comply with a consent decree from the SEC.