THURSDAY, March 28, 2024
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Tesla stock slides after Elon Musk asks Twitter if he should sell 10% of his stake

Tesla stock slides after Elon Musk asks Twitter if he should sell 10% of his stake

Tesla stock tumbled Monday after Elon Musk asked his Twitter followers to decide whether he should sell 10% of his holdings in the electric car company.

The 4.9% slide, which brought Tesla down to $1,162 a share and slashed $65 billion off its valuation, came after Musk put the question to his 62 million followers on Saturday: "Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?"

By the time the survey ended, 58% of the participants voted yes.

But the poll was held up by Sen. Ron Wyden, D-Ore., as exemplifying the need for his proposed Billionaires Income Tax. "Whether the world's wealthiest man pays any taxes at all shouldn't depend on the results of a Twitter poll," Wyden tweeted. "It's time for the Billionaires Income Tax."

Musk responded with a vulgar tweet about Wyden's profile picture, which was retweeted thousands of times.

Billionaires have been able to pay low effective tax rates, in part, because the value of their company stock holdings is not subject to capital gains taxes until they are sold. Wyden's plan, which has since been dropped, would have been a major shift in the U.S. tax code by leveling a 23.8% tax on the increase in stock value - or "unrealized capital gain" - even before those assets are sold. Lawmakers are now considering a millionaire surtax that would work differently.

Musk has been known to move his company's stock price with his tweets. Last week, shares fell sharply after he seemed to question Tesla's deal with the rental car company Hertz by saying a contract had not been signed yet.

In 2018, federal regulators charged Musk with securities fraud related to a potential effort to take Tesla private. The Securities and Exchange Commission alleged that a "series of false and misleading tweets" caused Tesla's stock price to jump more than 6% that day and significantly disrupted the market. Musk and Tesla ultimately reached a settlement with the SEC, with each paying a $20 million penalty and Musk having to relinquish his chairman title for three years.

Don Langevoort, a securities law and corporate governance expert with Georgetown University Law School, said he thinks Musk's weekend tweet is unlikely to draw SEC action, given that a Twitter poll isn't binding.

"The SEC in high-profile cases is usually pretty careful to select cases that they are highly confident in winning," Langevoort said. Ensuring that Musk is acting in the interest of investors would fall to the company's board, he added.

An SEC spokesperson declined to comment. Tesla did not respond to a request for comment.

Though Musk promised to abide by the poll results, he probably would have started selling millions of shares this quarter regardless, according to a CNBC report. The reason: Musk faces a tax bill of more than $15 billion in the coming months on stock options.

In 2012, Musk was awarded options as part of a compensation plan. The 22.8 million shares had a strike price of $6.24, according to CNBC, which based on Friday's closing price would put his gain on the shares at just under $28 billion. The options expire in August 2022, and to exercise them, Musk has to pay state and federal income tax on the gain.

Though Musk did not specify what he would do with the proceeds of the suggested stock sale, he tweeted Saturday: "Note, I do not take a cash salary or bonus from anywhere. I only have stock, thus the only way for me to pay taxes personally is to sell stock."

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