Company officers can’t be sued just for selling shares, even though it does put downward pressure on stock prices


I had a recent exchange with u/SamSeebourne in which he claimed that Musk could be sued by Tesla shareholders simply becuase his sales of stock caused Tesla's share price to drop (https://www.reddit.com/r/stocks/comments/vw441x/twitter_just_hired_the_92_dream_team_of_delaware/ifs8rpq/?context=3).

There's a lot of bad information out there about this topic, so I thought I'd clear a few things up:

  • Musk doesn't need permission from the Tesla board to sell shares. He's subject to the same regulations other company insiders are subject to, and he's subject to a special agreement from 2018 with the SEC governing his Tweets, but he doesn't need the board to say “yes” in order for him to sell stock.
  • Investors can sue Musk because they think his Tweets were fraudulent or deceptive or something else, but they can't sue him simply for selling shares he was legally permitted to sell.
  • While it's true that company officers have a fiduciary obligation to support stock prices and maximize long-term shareholder value, this only applies to their actions in their role as company officer. Their decision to sell their own shares is not part of that. All stock sales put downward prices on shares, and think about how absurd it would be if no company officer could ever sell stock because it would put downward pressure on prices.

Anyway, this is basic stuff, but it seems some people are confused on the basics here.

Edit: I should add that I don't have any related positions. I have never and will never buy any stock with Musk's name attached.


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