Explainer-5 authorized questions raised by Elon Musk’s unorthodox share gross sales By Reuters

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© Reuters. FILE PHOTO: Tesla Motors Chief Executive Officer Elon Musk speaks during a press conference in Tokyo Nov. 12, 2010. REUTERS / Issei Kato / File Photo

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By Katanga Johnson and Chris Prentice

WASHINGTON (Reuters) – It was another wild ride for Tesla (NASDAQ:) investors after billionaire boss Elon Musk promised on Twitter (NYSE 🙂 to sell 10% of his stake in the company. While his unorthodox approach raised eyebrows, it’s unclear whether he or Tesla broke any rules.

The electric automaker lost more than $ 150 billion in value after Musk asked Twitter followers over the weekend to sell 10% of its Tesla stake https://www.reuters.com/business/autos-transportation/ tesla-selloff-puts -risk-its-1-trillion-club-membership-2021-11-10 to pay new taxes discussed by Congress. Almost 58% said he should.

On Wednesday, Tesla announced that Musk had dumped 3% of its shares at https://www.reuters.com/business/autos-transportation/what-happened-with-musks-tesla-stock-sales-2021-11-11 the last few days. One-sixth of that stock was sold through a corporate “trading plan” – a legal arrangement that allows insiders to trade in the company’s stock at some point – in order to meet tax obligations. The plan, which was adopted on Sept. 14, was ahead of Musk’s poll.

Submissions didn’t say why Musk had sold the other 2.5%, and it was unclear as of Thursday whether the sales were related to Musk’s Twitter poll https://www.reuters.com/business/finance/how-tweets -by-teslas- elon-musk-have-moved-markets-2021-11-08, or whether he would have sold the remaining 7%.

SEC spokesmen and Tesla made no comment.

The episode re-raised the question of whether the celebrity billionaire broke the rules or the settlement he’d agreed with the Securities and Exchange Commission when he tweeted in 2018 that he’d secured funding to private Tesla even though he had actually not done so.

Here are five questions Tesla watchers ask:

DID MUSK BREACH HIS SEC AGREEMENT IN 2018?

We do not know it. That settlement, which the SEC tightened in 2019, requires Musk to review all tweets materials sent to Tesla investors with an attorney for the company, but Tesla and the SEC have not said whether this has happened. Given that Musk’s tweet appeared to be weakening the stock, he would break the deal if he didn’t review it, lawyers said.

WHAT ABOUT THE SALE OF THE TRADING PLAN?

The trading plans in “Rule 10b5-1” allow insiders to trade in shares in the company on a predetermined future date and provide legal protection against potential allegations of insider trading in material nonpublic information.

It is common for corporate insiders to plan trades in advance, although they can trade without the plan. Hence, Musk’s sales over the plan are not uncommon.

The plans themselves have more holes than a Swiss cheese, however, a problem SEC chairman Gary Gensler has promised https://www.reuters.com/business/us-secs-gensler-says-has-asked-staff-consider -new -rules-company-trading-plans-2021-06-07 to fix.

“Some degree of harassment is legal. This is due to the loose rules for ‘preplanned’ stock sales,” said Daniel Taylor, insider trading expert and professor at the University of Pennsylvania.

HAVE MUSK OR TESLA BREACHED THE SEC’S DISCLOSURE RULES?

It is unclear. While the announcement of a huge stock sale on Twitter may be unconventional for most CEOs, the norm for Musk and investors is to check Musk’s Twitter account for the latest. So the tweets themselves don’t seem to break any rules.

In fact, several securities attorneys said that Musk could argue that by stating that he had to sell to pay his taxes rather than let the market guess, he was mitigating the blow to the stock.

The pre-planned sales, however, raise the question of whether Musk had always intended to sell shares for tax reasons but did so at the behest of his followers.

Howard Fischer, a partner at law firm Moses & Singer, said that if Musk had kept the real reason for his sales secret, it could be a breach of disclosure, but at the same time there was a lot of public information about his reasons for the sales.

WILL THE SEC LOOK AT THE SALES?

The SEC constantly monitors market-moving events and has had a history of Musk. Since 2018, Tesla has asked Tesla at least three times if Musk’s tweets were up to par, showing public filings and internal SEC documents obtained through the Freedom of Information Act.

The agency’s new democratic leadership is also eager https://www.reuters.com/legal/litigation/corporate-crackdown-us-sec-takes-aim-executive-pay-2021-10-22 to take legal action against large corporations too and raise their top managers.

“This case appears to be another case where regulators and private plaintiffs will spend years investigating what he knew, what he did and why,” said Ty Gellasch, head of the Healthy Markets investor group.

Still, the SEC may struggle to show that Musk’s actions harmed investors, which is usually an important threshold for successfully imposing a sentence, attorneys said.

WAIT, SO HAS MUSK DONE NOTHING WRONG?

When it comes to securities law, time will tell. From a corporate governance point of view, his actions are problematic, said lawyers.

“If Tesla were a normal company and Musk a normal executive, such behavior would lead to a reprimand from the board of directors or worse,” said Fischer. But investors seem to be accepting Musk’s “oddities” by now, he added.

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