Connect with us

Business

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

Published

on

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.

Advertisement

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.

Advertisement

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.

Advertisement

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.

Advertisement

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.

Advertisement

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.

Advertisement

“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)

Continue Reading
Advertisement

Business

Arnault-backed group launches second SPAC listing

Published

on

December 7, 2021

By Emma-Victoria Farr

LONDON (Reuters) – France’s richest man Bernard Arnault and former UniCredit head Jean Pierre Mustier will publicly list a second blank cheque vehicle in Amsterdam, raising 200 million euros ($226 million), the bookrunners on the deal said.

Earlier this year, the duo raised half a billion euros from their special purpose acquisition company (SPAC), Pegasus Acquisition Company Europe B.V., which is searching for takeover targets in the financial sector.

Advertisement

On Tuesday, the same group of backers announced they would list a second vehicle with a similar focus, Pegasus Entrepreneurial Acquisition Company Europe, in Amsterdam.

SPACs are listed on a stock exchange by a group of entrepreneurs, who use the money raised to target a private company – allowing the target to get a stock market listing without the arduous process of launching a public listing.

Mustier is working with former Bank of America banker Diego De Giorgi and entrepreneur and investor Pierre Cuilleret in launching the 200 million euro listing.

Several SPACs have listed in Amsterdam, potentially boosting the Dutch financial capital’s credentials as a hub for fast-growing companies. London has only hosted one major SPAC in 2021, after updating its rules to make them easier.

Pegasus is backed by institutional sponsors Tikehau Capital and Financière Agache and by sponsors De Giorgi, Cuilleret and Mustier. Citi, Goldman Sachs and BNP Paribas are the bookrunners on the deal.

Advertisement

($1 = 0.8860 euros)

(Reporting by Emma-Victoria Farr; editing by John O’Donnell and Louise Heavens)

Continue Reading

Business

Bulls back in charge as Omicron worries wane

Published

on

December 7, 2021

By Marc Jones

LONDON (Reuters) – Waning Omicron COVID-19 variant worries and a timely booster shot of Chinese stimulus lifted world stock markets and oil on Tuesday and left traders offloading safe-haven currencies and bonds again.

The FTSEurofirst 300 index was on track for its first back-to-back run of plus 1% gains since February while Asia saw record bounces from some of China’s biggest firms such as Alibaba and Baidu. [.SS][.EU]

Advertisement

The risk-on mood also helped the dollar climb against safe haven currencies such as the Japanese yen,, which had lost 0.6% overnight, as the confidence-sensitive Australian dollar also found buyers. [FRX/]

Safe-harbour government bonds went the other way with yields – which move inverse to bond prices – up 2.5% on Germany’s benchmark 10-year Bund after falling to a three-month low on Monday. [GVD/EUR]

Reports in South Africa said Omicron cases there had only shown mild symptoms and the top U.S. infectious disease official, Anthony Fauci, told CNN “it does not look like there’s a great degree of severity” so far.

“Good news relating to the severity of Omicron should be taken with a pinch of salt. Faster transmission could offset the benefits of milder symptoms,” researchers at ING said in a note. “More broadly, it is still early days, even if markets are starting to display Omicron fatigue.”

The gains also came after China’s central bank on Monday injected its second shot of stimulus since July by cutting the amount of cash that banks must hold in reserve.

Advertisement

There was still uncertainty about its property sector as Evergrande teetered on the brink of default again but data showing much stronger import growth was “a positive sign on the strength of domestic demand”, RBC analyst Adam Cole said.

Elsewhere, Australia’s S&P/ASX200 rose 0.95%, while Japan’s Nikkei advanced 2.1% as risk-on sentiment pushed markets higher.

MSCI’s main Asia ex-Japan benchmark has lost about 5% so far this year, with Hong Kong markets figuring among the big losers, while Indian and Taiwan stocks outperformed.

Shares in embattled developer Evergrande edged up 1.7% after hitting a record low on Monday as markets waited to see if the real estate giant has paid $82.5 million with a 30-day grace period coming to an end.

Elsewhere, markets were supported by gains on Wall Street, where economically sensitive stocks outperformed.

Advertisement

“While epidemiologists have rightly warned against premature conclusions on Omicron, markets arguably surmised that last week’s brutal sell-off ought to have been milder,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, said in a note.

“After all, early assessments of Omicron cases have been declared mild, spurring half-full relief.”

Also supporting the dollar in FX markets was the expectation the Federal Reserve will accelerate the tapering of its bond-buying programme when it meets next week in response to a tightening labour market.

Oil prices jumped another 2% to $74.60 a barrel, adding to a near 5% rebound the day before as concerns about the impact of Omicron on global fuel demand eased. [O/R]

Copper prices also ticked higher while gold was steady at $1,778.5 per ounce on expectations U.S. consumer price data due later this week will show inflation quickening.

Advertisement

(Additional reporting by Anshuman Daga in Singapore; Editing by Nick Macfie)

Continue Reading

Business

Exclusive: EU antitrust regulator seeks input on Microsoft’s $16 billion Nuance deal

Published

on

December 7, 2021

By Paresh Dave

(Reuters) – EU’s antitrust regulator is taking a deeper look into Microsoft Corp’s $16 billion deal for transcription technology company Nuance Communications Inc, asking customers and competitors to draw up a list of concerns, according to a questionnaire from last month seen by Reuters.

The previously unreported outreach is the most extensive by an antitrust authority since the companies announced the acquisition in April, according to a person familiar with the matter.

Advertisement

Microsoft declined to comment, and Nuance did not respond to a request for comment.

After minimal review, the U.S. Department of Justice in June and the Australian Competition Commission in October said they would not contest the deal. The companies filed for approval from the European Commission’s competition bureau last month, and the regulator has until Dec. 21 to clear the deal or open a bigger investigation.

The companies had expected to close the deal by the end of this year, but said last month the timeline could slip to early next year.

The questionnaire asks whether Microsoft and Nuance are competitors and whether a tie-up could affect clients and rivals, including whether Microsoft could favor Nuance over competing services.

Nuance primarily sells transcription technology that is popular among doctors and call centers that want to automate note-talking. Analysts view the deal as bolstering Microsoft’s presence in the healthcare market, and bringing it new voice and medical data to train artificial intelligence offerings in health, speech and biometric security.

Advertisement

Like other big tech companies, Microsoft for years has grown its business through acquisitions, such as in advertising and video gaming. But in the last decade, Microsoft has avoided the target that recently has dogged its competitors Alphabet Inc’s Google, Facebook Inc, Apple Inc and Amazon.com Inc, all of which are facing antitrust lawsuits and investigations on numerous issues.

Steven Weber, a University of California Berkeley professor studying the intersection of technology and health care, said possible concerns about the pending deal could include Microsoft forcing its Office suite on Nuance customers by bundling them together.

Nuance has said it serves 77% of U.S. hospitals.

A key to its success has been has ensuring in deals with customers that it could use their data to advance its voice recognition systems, according to former chief executive Paul Ricci and another former employee.

For instance, a Nuance contract with Augusta University Medical Center, obtained by Reuters this year through a public records request, reads, “Customer shall provide Nuance access to voice and text data…and grants Nuance a perpetual, royalty-free license to copy, use and analyze such data for speech recognition research.”

Advertisement

Big cloud vendors such as Amazon and Microsoft typically do not have unfettered access to customers’ data for research and development. But the opportunity to acquire those relationships and data explains Microsoft’s interest in Nuance, the former employees said.

Other providers of health transcription technologies include 3M Co and Philips.

(Reporting by Paresh Dave; Editing by Kenneth Li and David Gregorio)

Advertisement
Continue Reading
Advertisement

Trending