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Tesla shareholder sues Musk to return billions in alleged unlawful profits

In Business
June 12, 2024

WILMINGTON, Delaware (Reuters) -Elon Musk made billions of dollars by selling Tesla stock using insider information, an institutional shareholder accused in a lawsuit filed on Tuesday, asking the court to direct the Tesla CEO to return “unlawful profits.”

The lawsuit comes two days before a critical vote by Tesla shareholders on whether to reinstate Musk’s $56 billion pay package, after a Delaware judge voided it in January because she found that Musk had improperly controlled the process.

Musk and his brother, Kimbal Musk, a Tesla director, sold a combined $30 billion in the electric vehicle maker’s stock between late 2021 and the end of 2022, cashing in before news that would cause the stock to fall became public, according to the lawsuit, which was filed by the Employees’ Retirement System of Rhode Island (ERSRI).

Musk sold the shares at artificially inflated prices by concealing his plan to use the proceeds to buy social media platform Twitter, which he later renamed X, according to the lawsuit, filed at the Delaware Chancery Court. Musk also sold Tesla stock when he knew that deliveries of Tesla cars had fallen far below public projections, the lawsuit said.

Musk and Tesla did not respond to messages seeking a comment.

The Employees’ Retirement System of Rhode Island holds about 140,000 shares of Tesla. Tesla’s stock closed at $170.66 on Tuesday, valuing the stake at about $24 million.

A similar suit filed at the same court late last month by Michael Perry, another Tesla shareholder, accused Musk of insider trading when he sold over $7.5 billion of shares in Tesla in late 2022.

Musk is in the middle of a regulatory probe to determine whether he broke federal securities laws in 2022 when he bought Twitter stock.

Tuesday’s lawsuit by ERSRI also said that Musk had been disloyal toward Tesla in several instances, including diverting Tesla employees to work at X and causing Tesla to start paying for advertising on Twitter after he bought the platform.

ERSRI was concerned that Tesla’s board of directors was not doing enough to oversee Musk’s conflicts of interest, the fund’s general treasurer said in a statement.

Musk also helped xAI, where he is CEO, to hire Tesla employees and divert artificial intelligence (AI) semiconductors bound for Tesla to the X messaging platform and to xAI, the lawsuit alleged.

News last week of the AI chip shipments raised worries that Musk was giving precedence to AI-related development outside Tesla. In a post on X, Musk said Tesla had no place to store and turn on the Nvidia AI processors.

(Reporting by Tom Hals in Wilmington, Delaware, and Abhirup Roy in San Francisco; Editing by Leslie Adler)

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