Over the weekend, Tesla owner Elon Musk turned to social media for financial advice. Probably not a sound financial decision, or was it? Even though the electric manufacturer lost a net over $150 billion by following his Twitter followers’ advice, his actions seem suspect. Musk sold around 4.5 million shares, which is roughly about 3% of his total holdings in Tesla. You do not become a self-made billionaire by following the masses.
Perhaps he’s getting ahead of Congress
According to Bloomberg BusinessWeek, Biden’s attempts to wrangle more funds through taxing the tippy top of the wealth might be what Musk is trying to dodge. But further investigate the tax plan shows Biden may have missed his mark. “Investment gains are only taxed when they’re sold, and the very wealthy only rarely need to sell.” Elon Musk is the world’s richest person with $302 billion. He asked his followers on Twitter to vote whether or not he should sell 10% of his Tesla stake to pay taxes. But why did he really sell? Perhaps Musk is planning with the potential earnings with the deal brokered with Hertz to sell 100,000 Teslas? Biden’s millionaire surtax is going to hit the highest-earners, and his stock did rise 51% in 2021.
Tesla Further Investigation
According to Reuters, “Retail investors have been net buyers of the stock. Some 58% of Tesla trade orders on Fidelity’s brokerage website on Wednesday were for purchases, rather than sales.” Is this just a coincidence? He has been guilty of insider trading breaches before. In 2018 Musk tweeted about stock sales, a big no-no. His latest actions (while always unconventional) land in the grey area contained in pre-planned stock sale rules. This still doesn’t answer the question of disclosure, though. Why the public announcement? According to Reuters, “When it comes to the securities law, [Musk may have broken] time will tell. From a corporate governance standpoint, [Musk’s] actions are problematic,” (reuters.com).
Musk’s Celebrity Status
Fischer, (who is he?) said, “”If Tesla was a normal company, and Musk a normal executive, this kind of behavior would lead to a board rebuke or worse, but investors appear…to accept Musk’s ‘oddities.’” Why? Why is he above the law? Days before the Tweet, “Tesla disclosed that Musk had offloaded 3% of his stock [already.]” All these sales predated his tweet. Furthermore, the legal filings did not say why he sold prior.
Grey Area Galore
Apparently, stock law has about as many holes as “Swiss cheese.” Daniel Taylor (an insider expert and professor at the University of Pennsylvania) said, “Some amount of chicanery is legal. And it is the looseness in the rules covering ‘pre-planned’ stock sales that are to blame.” That sounds like a minefield. Couple that with Musk’s one-of-a-kind way of doing things, and there’s no wonder he got in trouble. But wait!
Swiss Cheese, Tesla
Even some security lawyers argued, “Musk could argue…explaining he had to sell to pay his taxes, rather than leaving the market guessing, he softened the blow to the stock.” The suspect all boils down to Swiss cheese.
- Musk sold 3% prior to his “Big Tweet Poll,”
- He sold another 2.5 % before his “Tweet” with no disclosed purpose on legal filings.
- In 2018 he was charged with a Tweet Breech and Legal actions were taken.
- The big Tweet asked if he should sell 10%, when he already had sold half that.
His story resembles the stock law with all its giant holes. So Did Musk break the law, or did he slip through one of the many holes in the stock and trading laws? What do you think? Comment below guilty or not?