By on February 25, 2022

The Securities and Exchange Commission (SEC) is reportedly investigating whether stock sales by Tesla CEO Elon Musk and his brother, Kimbal Musk, violated insider-trading rules.

Launched in 2021, the probe is looking into shares sold by Kimbal valued at $108 million one day before Elon polled Twitter to see whether or not he should offload 10 percent of his stake in the company, suggesting he would run with the results. Though the tweet itself was a snide way of discussing proposals from Democrat legislators that would have imposed new taxes on unrealized capital gains, effectively money that doesn’t yet (and may never) exist. 

Whether or not that’s fair is largely down to point of view. Some saw the plan as government overreach that risked pushing everyone but the super-rich out of the stock market. Musk, who was already footing the largest tax bill in the country, indicated that he felt the government isn’t entitled to anything else. But others thought it was just the ticket for increased tax revenue, noting that the largest payouts would come from the country’s biggest bankrolls.

Why is that so relevant in regard to the SEC investigation? Well, Tesla has repeatedly suggested that the organization is out to get it and its CEO. Musk suggested that the stock sale would be used to offset any money he would have to pay via unrealized capital gains. According to The Wall Street Journal, the company sees this as the government having its revenge.

Tesla has recently accused the SEC of harassing the company and its chief executive by repeatedly launching new enforcement investigations. The friction dates to a 2018 lawsuit in which regulators accused Mr. Musk of misleading investors with a tweet that said he could take the company private and had the funding to do so.

One question for regulators, according to securities lawyers, would be whether Mr. Musk told his brother about his upcoming tweet or about the timing of his sales before Kimbal Musk traded on Nov. 5 — or if Kimbal Musk otherwise learned of the poll and then traded. Kimbal Musk serves on Tesla’s board of directors.

Kimbal Musk’s trading could violate rules that generally prohibit employees and board members from trading on material nonpublic information. Employees and directors of public companies generally can’t buy or sell shares when they are aware of undisclosed material information.

I’ll be the first person to claim that the Biden administration and allied legislators genuinely seem to dislike Tesla. Despite being the world’s largest purveyor of all-electric vehicles (and American to boot), the White House has repeatedly snubbed the automaker when discussing its extremely ambitious EV plotting while embracing its rivals. Tesla has also seen an increase in the regulatory actions launched against it since Joe Biden took office. While some of that is undoubtedly the result of some genuinely misleading marketing language (e.g. Autopilot and Full Self Driving) or lackluster quality control, something tells me that Elon Musk’s aversion to having a unionized labor force and constant criticism of Biden’s Build Back Better Agenda played a factor.

But that doesn’t mean the CEO hasn’t been a bad boy. One could argue that his constant talk surrounding cryptocurrencies knowingly moved the market in ways that allowed him to profit directly and his public speculation about the Tesla stock is definitely worthy of a few raised eyebrows. Then again, blatant examples of insider trading are also rampant in the U.S. Congress and you don’t often see the SEC coming after those people no matter which side of the aisle they’re on.

It’s also not abundantly clear how the SEC is going to prove any criminal wrongdoing. While Tesla is publicly traded, the stock was technically Elon’s to do with as he wished. The Securities and Exchange Commission would presumably need to prove that there was some level of plotting between the Musk brothers for further action to be taken. However, the Tesla CEO told the Financial Times on Thursday that Kimbal was totally unaware that he planned to conduct the Twitter poll while confirming the company’s lawyers knew about it.

Elon has been fighting with the SEC pretty consistently since 2018 and the pressure only seems to have been ratcheted up recently. The regulator seems perpetually annoyed with his social media presence, especially when he shares something before running it by his lawyers. But those same lawyers have been accusing the SEC of launching serial investigations into Tesla and leaking sensitive information that was supposed to remain private.

The bottom line: Elon Musk probably plays things a little too fast and loose via social media (e.g. “funding secured”) and the SEC probably plays favorites.

[Image: Naresh111/Shutterstock]

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20 Comments on “Report: Elon Musk and Brother Face Insider Trading Probe...”


  • avatar
    Crosley

    Funny how as soon as Elon Musk started pushing back on some liberal narratives, every government agency is suddenly breathing down his neck.

    Seems a really weak case, a private citizen telling a family member they may sell some personal stock depending on a twitter poll result is not the same thing as giving some inside information about the actual company that hasn’t been released to the public.

    If Elon told his brother “Tesla had a terrible earnings report we have yet to release, liquidate your stock” that would be closer to insider trading. There’s also a gray area of quid pro quo, which would be another high hurdle for an insider trading conviction.

    It’s just about getting Elon to be quiet and make his life miserable because he’s not towing the line.

    • 0 avatar
      Luke42

      “a private citizen telling a family member they may sell some personal stock”

      When one of those family members is the CEO of a publicly traded company, this is the textbook definition of insider trading.

      I was once on the insider list for a publicly traded company because I was doing IT on a glorified accounting system. I had to follow these rules, and Musk does too.

      I sides have been trying to bend the rules for decades, so the rules are pretty clear.

      • 0 avatar
        jacob_coulter

        Not a “textbook” case by any means of insider trading. You clearly don’t know what you’re talking about regarding securities law.

        • 0 avatar
          Luke42

          @jacob-coulter

          If Musk’s brother is trading the stock based on information not available to the public, that’s a textbook case of insider trading. The CEO likely has a lot of information not available to the public.

          The fact that they’re acting as “private citizens” is completely irrelevant to insider trading. The “private citizen” argument means that this isn’t embezzlement, but nobody accused either Musk of embezzling anything.

          Can you be specific about what exactly it is that you think I don’t know?

    • 0 avatar
      SoCalMikester

      im curious how many OEMs are going to go with a joystick to drive, because apparently yokes are approved. i mean, there cant be any rules on steering controls, can there?

      FFS, honda had to get an EXEMPTION to make scooters that dont have a right brake pedal, and use R and L brake LEVERS.

      rules dont apply to the dreamers

    • 0 avatar
      Ol Shel

      Someone needs to stop those Libs from enforcing laws.

      Musk is our country’s richest mentally-ill troll. We must bow down to him.

  • avatar
    la834

    > Though it was an all-new design outside, the stuff underneath and inside the Imperial was much less special than the exterior.

    Lee Iacocca’s fatal flaw. The massive success of the Mustang despite being a mundane Falcon under the skin convinced him it was the sizzle that mattered, not the steak, and he spent the rest of his career championing flashy cars built on cheap, mundane, often behind-the-times underpinnings – why spend money upgrading stuff nobody could see? Thus the Mark III/IV/V, the Pinto-based Mustang II, the still Falcon-based Granada and Lincoln Versailles, the Torino-based T-Bird, and later the Chrysler K platform used for everything from sports coupes to limousines. The 81-83 Imperial followed the script, being built on the 2nd gen Cordoba/Mirada platform, which was basically the Aspen/Volare platform from 1976, leaf springs and all. The Imperial coupe’s interior was beautiful and very plush, but any impressions of it being a proper luxury car ended when you hit your first bump or pothole. Or when the fuel injection or digital dash failed.

  • avatar
    NigelShiftright

    Speaking just for my own self, I would very much like to have a mutual fund that mimics the portfolios of the five most senior members of the U.S. House and of the Senate.

  • avatar
    Master Baiter

    Musk is libertarian in his leanings and has been critical of both state and federal governments, including buffoons like Elizabeth Fauxcahontas Warren. Probably hasn’t donated enough protection money to political campaigns either, so now they’re extracting their revenge.

  • avatar
    SoCalMikester

    sure would be nice if the ford family was talking about going private, and juicing that stock. if anyone at ford is reading this

  • avatar
    SoCalMikester

    musk has always been one of those special aspies. oh look at the gifted boy being a brat… again. its okay- we know youre on the spectrum.

    carry on sweet summer child… carry on.

  • avatar
    jacob_coulter

    Really weak case, just a form of harassment.

    Curious when people like Nancy Pelosi get “probed” by the SEC.

  • avatar
    dal20402

    Amusing to see all the horse-pasters assuming this is some sort of retribution, when the alleged perp is a guy who has refused to follow any rules during most of his career. It would be more of a surprise if he were not engaged in insider trading than if he were.

    At least this administration is actually willing to investigate.

  • avatar
    Arthur Dailey

    Kudos to Musk and Starlink for launching satellites which may be able to assist Ukraine’s government in maintaining communications. Said ‘may’ as there is uncertainty regarding its actual usability/connectivity.

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