A Tesla (NASDAQ:TSLA) shareholder, Michael Perry, sued CEO Elon Musk for insider trading. Perry claims Musk exploited his position, selling $7 billion worth of TSLA shares in November and December 2022. This sale occurred before the disclosure of Tesla’s Q4 delivery numbers on January 2, 2023, which caused the stock price to drop.
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Perry claims that Musk possessed material nonpublic information (MNPI) and was aware of the lower-than-expected delivery figures by mid-November. Musk allegedly sold his shares before the information was made public. Perry asserts that Musk’s insider profits from the sales in November and December amounted to approximately $3 billion, based on the January 3, 2023, closing price of $108.10 per share.
The lawsuit also targets Tesla’s directors, accusing them of breaching their fiduciary duty by allowing Musk’s stock sales. The legal action requests that the court direct Musk to return the profits made from these trades. It argues that if Musk had waited to sell until after the adverse news was released, his gains would have been less than 55% of what he actually realized.
Musk’s Growing Legal Risks
This lawsuit adds to Musk’s increasing legal difficulties, including opposition from Tesla shareholders over his substantial pay package, which a Delaware judge nullified in January.
Additionally, Musk has agreed to testify in the Securities and Exchange Commission’s (SEC) investigation into his 2022 deal to buy Twitter. The SEC examines whether he violated federal securities laws when purchasing a stake in Twitter, now rebranded as X.
Tesla Stock Underperforms
Amid Musk’s legal challenges, Tesla stock is underperforming due to the softening of the electric vehicle (EV) demand and rising competition. TSLA stock is down about 28.33% year-to-date, underperforming the S&P 500’s (SPX) nearly 10.6% gain.
Is Tesla a Buy, Sell, or Hold?
Tesla is working on introducing new models, including more affordable versions, to drive growth. The company also aims to reduce vehicle costs to improve its margins. However, analysts remain sidelined on TSLA stock due to demand concerns.
It has nine Buy, 14 Hold, and nine Sell recommendations for a Hold consensus rating. The average price target on TSLA stock is $174.60, implying about -1.95% downside potential from current levels.
