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Explainer-Five legal questions raised by Elon Musk’s unorthodox share sales

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November 12, 2021

By Katanga Johnson and Chris Prentice

WASHINGTON (Reuters) -It’s been another wild ride for Tesla investors after billionaire chief executive Elon Musk pledged via Twitter to sell 10% of his shares in the company. While the unorthodox way he went about it has raised eyebrows, it’s unclear if he or Tesla have broken any rules.

The electric carmaker lost more than $150 billion in value after Musk asked his Twitter followers over the weekend if he should sell 10% of his 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 being discussed by Congress. Nearly 58% said he should.

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On Wednesday, Tesla disclosed that Musk had offloaded https://www.reuters.com/business/autos-transportation/what-happened-with-musks-tesla-stock-sales-2021-11-11 3% of his stock in recent days. A sixth of those shares were sold via a corporate “trading plan” – a legal agreement that allows insiders to trade in the company’s shares at a pre-determined date – to satisfy tax obligations. The plan, adopted Sept. 14, pre-dated Musk’s poll.

Musk sold another smaller block of shares on Friday.

The filings did not say why Musk had sold that latest block or the previous 2.5%, and as of Friday it was unclear if the sales related to Musk’s Twitter poll https://www.reuters.com/business/finance/how-tweets-by-teslas-elon-musk-have-moved-markets-2021-11-08.

Spokespeople for the SEC and Tesla did not provide comment.

The episode has again raised questions as to whether the celebrity billionaire breached any rules or the settlement he agreed with the U.S. Securities and Exchange Commission (SEC) for tweeting in 2018 that he had secured funding to take Tesla private when in fact he had not.

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Here are five questions Tesla-watchers are asking:

DID MUSK BREACH HIS 2018 SEC SETTLEMENT?

We don’t know. That settlement, which the SEC tightened up in 2019, requires Musk to check any Tweets material to Tesla investors with a company lawyer, but Tesla and the SEC have not said whether that happened. Given Musk’s Tweet appeared to tank the stock, he would be in breach of the settlement had he failed to vet it, said lawyers.

WHAT’S THE DEAL WITH THE TRADING PLAN SALES?

The “Rule 10b5-1” trading plans allow insiders to execute trades in the company’s stock on a pre-determined future date, providing legal protection against potential allegations of insider trading on material non-public information.

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It’s common for corporate insiders to pre-plan trades, although they can trade without the plan too. As such, Musk’s sales via the plan are not unusual.

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

“Some amount of chicanery is legal. And it is the looseness in the rules covering ‘pre-planned’ stock sales that are to blame,” said Daniel Taylor, an insider trading expert and professor at the University of Pennsylvania.

SO DID MUSK OR TESLA BREACH SEC DISCLOSURE RULES THEN?

That’s unclear. While announcing a huge share sale on Twitter may be unconventional for most chief executives, it’s the norm for Musk and investors know to watch Musk’s Twitter account for news. So the Tweets per se don’t appear to violate any rules.

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In fact, several securities lawyers said Musk could argue that by explaining he had to sell to pay his taxes, rather than leaving the market guessing, he softened the blow to the stock.

However, the pre-planned sales raise the question of whether Musk had always intended to sell some stock for tax — or other — reasons, but said he was doing so at the behest of his followers. Tesla has benefited from a meteoric rise that drove the electric carmaker’s value to over $1 trillion https://www.reuters.com/business/autos-transportation/teslas-1-trillion-value-double-bonanza-musk-2021-10-25 last month.

Howard Fischer, a partner at law firm Moses & Singer, said if Musk had concealed the real reason for his sales that could arguably be a disclosure violation, but at the same time there was a lot of public information on his reasoning for the sales.

SO WILL THE SEC TAKE A LOOK AT THE SALES?

The SEC constantly monitors market-moving events and has kept an eye on Musk in the past. Since 2018, it has queried Tesla on at least three occasions as to whether Musk’s Tweets complied with the settlement, public filings and internal SEC documents obtained via the Freedom of Information Act show.

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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 bring cases against big companies and their top executives.

“This case seems like yet another instance where regulators and private plaintiffs are going to spend years investigating what he knew, what he did, and why,” said Ty Gellasch, head of investor group Healthy Markets.

Still, the SEC may struggle to show Musk’s actions harmed investors, typically a key threshold for successfully bringing a penalty, said lawyers.

WAIT, SO MUSK HASN’T DONE ANYTHING WRONG?

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

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“If Tesla was a normal company, and Musk a normal executive, this kind of behavior would lead to a board rebuke or worse,” said Fischer. But investors appear by now to accept Musk’s “oddities,” he added.

(Writing by Michelle Price, Editing by Nick Zieminski)

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Amazon asks India antitrust body to revoke Reliance-Future deal approval

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November 28, 2021

By Aditya Kalra and Abhirup Roy

NEW DELHI (Reuters) – Amazon has asked India’s antitrust regulator to revoke its approval for Future Retail’s $3.4 billion sale of retail assets to Reliance, saying it was “illegally obtained”, violating an order suspending the deal, a letter seen by Reuters shows.

The approval for the deal was a “nullity in the eyes of law” as an arbitrator’s order was still in force, according to the letter sent by Amazon.com Inc to the Competition Commission of India (CCI) last week.

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The battle between two of the world’s richest men, Amazon founder Jeff Bezos and Reliance Industries Ltd boss Mukesh Ambani, marks a contest for preeminence in India’s booming, nearly trillion-dollar retail market.

The winner in the fight for Future Retail Ltd, India’s second-largest retailer and Amazon’s estranged local partner, will get pole position in the race to meet the daily needs of more than a billion people.

The CCI, Amazon, Future Group and Reliance did not respond to requests for comment.

Future has said the arbitrator’s suspension order was invalid but Indian courts have declined to overturn it.

If the regulator agrees with the previously unreported letter, it would be a major setback for oil-to-telecom conglomerate Reliance.

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Amazon won an injunction against the deal from a Singapore arbitrator last year, alleging Future had violated contracts that prevented it from selling the assets to entities including Reliance.

But the CCI later cleared the deal.

Future misled the CCI and continued to seek approval for the deal, Amazon said in the letter dated Wednesday, calling the injunction a “brazen attempt to subvert the rule of law”.

Amazon asked for a personal hearing from the CCI to make its case.

The letter comes as Amazon is also battling allegations that it misrepresented facts and concealed information while seeking antitrust clearance for a 2019 deal with Future Group.

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Amazon has so far successfully used this deal’s contracts to block Future’s deal with Reliance.

(Reporting by Aditya Kalra and Abhirup Roy in New Delhi; Additional reporting by Zeba Siddiqui; Editing by William Mallard)

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Exclusive-Visa complains to U.S. govt about India backing for local rival RuPay

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November 28, 2021

By Aditya Kalra

NEW DELHI (Reuters) – Visa Inc has complained to the U.S. government that India’s “informal and formal” promotion of domestic payments rival RuPay hurts the U.S. giant in a key market, memos seen by Reuters show.

In public Visa has downplayed concerns about the rise of RuPay, which has been supported by public lobbying from Prime Minister Narendra Modi that has included likening the use of local cards to national service.

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But U.S. government memos show Visa raised concerns about a “level playing field” in India during an Aug. 9 meeting between U.S. Trade Representative (USTR) Katherine Tai and company executives, including CEO Alfred Kelly.

Mastercard Inc has raised similar concerns privately with the USTR. Reuters reported in 2018 that the company had lodged a protest https://reut.rs/3cQA2La with the USTR that Modi was using nationalism to promote the local network.

“Visa remains concerned about India’s informal and formal policies that appear to favour the business of National Payments Corporation of India” (NPCI), the non-profit that runs RuPay, “over other domestic and foreign electronic payments companies,” said a USTR memo prepared for Tai ahead of the meeting.

Visa, USTR, Modi’s office and the NPCI did not respond to requests for comment.

Modi has promoted homegrown RuPay for years, posing a challenge to Visa and Mastercard in the fast-growing payments market. RuPay accounted for 63% of India’s 952 million debit and credit cards as of November 2020, according to the most recent regulatory data on the company, up from just 15% in 2017.

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Publicly, Kelly said in May that for years there was “a lot of concern” that the likes of RuPay could be “potentially problematic” for Visa, but he stressed that his company remained India’s market leader.

“That’s going to be something we’re going to continually deal with and have dealt with for years. So there’s nothing new there,” he told an industry event.

‘NOT SO SUBTLE PRESSURE’

Modi, in a 2018 speech, portrayed the use of RuPay as patriotic, saying that since “everyone cannot go to the border to protect the country, we can use RuPay card to serve the nation.”

When Visa raised its concerns during the USTR gathering on Aug. 9, it cited the Indian leader’s “speech where he basically called on India to use RuPay as a show of service to the country,” according to an email U.S. officials exchanged on the meeting’s readout.

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Finance Minister Nirmala Sitharaman said last year that “RuPay is the only card” banks should promote. The government has also promoted a RuPay-based card for public transportation payments.

While RuPay dominates the number of cards in India, most transactions still go through Visa and Mastercard as most RuPay cards were simply issued by banks under Modi’s financial inclusion programme, industry sources say.

Visa told the U.S. government it was concerned India’s “push to use transit cards linked to RuPay” and “the not so subtle pressure on banks to issue” RuPay cards, the USTR email showed.

Mastercard and Visa count India as a key growth market, but have been jolted by a 2018 central bank directive for them to store payments data “only in India” for “unfettered supervisory access”.

Mastercard faces an indefinite ban on issuing new cards in India after the central bank said it was not complying with the 2018 rules. A USTR official privately called the Mastercard ban “draconian”, Reuters reported in September.

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(Reporting by Aditya Kalra in New Delhi; Editing by William Mallard)

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‘Flash mob’ thieves target U.S. retail stores on Black Friday

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November 28, 2021

By Steve Gorman

LOS ANGELES (Reuters) – Black Friday shoppers weren’t the only ones out hunting for bargains on the day after Thanksgiving. Thieves were busy as well.

Police in Los Angeles and cities elsewhere across the country spent much of their holiday weekend patrols looking for suspects in a spate of “flash mob” robberies on Friday, part of a surging U.S. crime trend in which groups of thieves swarm a store, ransack the shelves and flee.

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Authorities also have used the term “smash-and-grab” to describe the trend.

At least two such robberies were reported on Saturday by the Los Angeles Police Department (LAPD) and the Los Angeles County Sheriff’s Department. A local television station, KCAL-TV, counted a total of six smash-and-grab heists on the city’s west side alone on Friday.

In one incident, a group of eight men entered a Home Depot outlet at a shopping mall in Lakewood, south of downtown Los Angeles, walked directly to the tool aisle and snatched a bunch of hammers, sledgehammers and crowbars valued at about $400 before making their getaway, the sheriff’s office said.

According to L.A. television station KTTV, the Home Depot robbery on Friday night involved up to 20 suspects who pulled up to the store in as many as 10 cars and donned ski masks before raiding the tool aisle.

“We tried to stop them,” store employee Luis Romo told KTTV. “We closed the front entrance, and they put their sledgehammers up and whoever got in the way, they were going to hurt them.”

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The Los Angeles City News Service said four suspects in that robbery were arrested on Saturday by Beverly Hills police.

In a similar incident Friday afternoon, a group of 10 men or more invaded a store in the city’s Fairfax district and started grabbing merchandise without paying for it, pushing employees out of the way before fleeing the scene, according to LAPD.

Police are investigating possible ties between that incident and a flurry of other robberies and retail thefts on Friday and earlier in the week, including two smash-and-grabs reported on Wednesday, an LAPD spokesperson said.

The rash of retail crime prompted the LAPD to place its officers on a citywide tactical alert on Friday afternoon.

Mass robberies also were reported on Friday at two Best Buy electronics stores in the Minneapolis-St. Paul area, one of them involving as many as 30 suspects, while a spree of pre-dawn retail burglaries were under investigation in Chicago.

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In one of the biggest flash-mob robberies reported on the West Coast in recent days, police in the San Francisco suburb of Walnut Creek were seeking about 80 suspects who swarmed and ransacked a department store last Saturday.

(Reporting by Steve Gorman in Los Angeles; Editing by Paul Simao)

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