Elon Musk and brother being probed for insider trading: report

Tesla CEO Elon Musk and his brother, Kimbal Musk, are being investigated by the Securities and Exchange Commission (SEC) for insider trading violations, The Wall Street Journal reported, citing people familiar with the matter.

The SEC began its investigation into the Musk brothers last year after Kimbal Musk sold 88,500 Tesla shares valued at $108 million a day before Elon Musk asked in a Twitter poll if he should unload 10 percent of his stake in the company and vowed to abide by the voting results, according to the Journal.

Musk framed the potential sale of his stock as a means to pay any taxes he would owe if lawmakers imposed new taxes on unrealized capital gains.

Following Musk’s poll, in which 58 percent of respondents voted that he should sell, Tesla shares dropped precipitously, according to the Journal.

The newspaper reported that Kimbal Musk’s trading could violate rules prohibiting employees and board members from trading on material nonpublic information. When employees and directors of public companies are aware of undisclosed material information, they generally cannot buy or sell shares.

According to security filings, Kimbal Musk frequently traded Tesla stock under a 10b5-1 plan, which insiders can use to trade at predetermined intervals provided they don’t change the plan when they have material nonpublic information, the Journal reported.

Kimbal Musk has made more than 40 disclosures since 2011, indicating the sales were made under a plan, according to the newspaper, citing regulatory findings.

The Wall Street Journal also noted that the SEC sometimes closes probes without taking enforcement action, and that it could do so in this case.

Tesla has accused the SEC of harassing the company and Elon Musk by launching these new investigations.

The company and the SEC settled a lawsuit in 2018 after the agency accused Elon Musk of misleading investors with a tweet that said he had secured funding to make his company private. 

The parties agreed to each pay $20 million, and Elon Musk stepped down as Tesla chairman in the lawsuit settlement.