By Subrat Patnaik, Vidya Ranganathan and Chris Prentice
(Reuters) -Tesla Inc chief Elon Musk's Twitter (NYSE:TWTR) poll proposing to sell a tenth of his holdings in the electric carmaker shaved around $60 billion off the company's market value on Monday and raised questions about whether he may have violated his settlement with the U.S. securities regulator again.
Musk, the world's richest person with a net worth estimated by Forbes at $304 billion on Monday, tweeted on Saturday that he would offload 10% of his stake if users of the social media network approved. The poll garnered more than 3.5 million votes, and 57.9% of the people voted in favor.
Musk's poll follows a proposal by U.S. Senate Democrats to tax stocks of billionaires to help finance President Joe Biden's social spending plan and fill a loophole that allowed the rich to indefinitely defer capital gains taxes.
Tesla (NASDAQ:TSLA)'s shares were last down 4.8% at $1,162.94 after falling as low as $1,133 earlier in the session. Tesla accounted for over 10% of all trading in U.S. companies' stocks, according to Refinitiv data.
"Elon Musk doesn't like to do things in a conventional way," said Russ Mould, director at AJ Bell Investment. "Holding a poll on Twitter about whether he should sell 10% of his stake in Tesla might seem crazy, but one could say it is normal behavior for him."
Musk had previously said he would have to exercise a large number of stock options in the next three months, which would create a big tax bill. Selling some of his stock could free up funds to pay the taxes.
"I only have stock, thus the only way for me to pay taxes personally is to sell stock," Musk wrote along with his poll. "I was prepared to accept either outcome."
However, Musk's tweet renews questions about whether he is in compliance with a 2018 settlement with the U.S. Securities and Exchange Commission (SEC) that requires material tweets about the company to be vetted by a lawyer. The SEC, which declined to comment, found Musk violated that agreement in 2019 and tightened it.
Tesla was not immediately available for comment.
Philip Moustakis, a former SEC enforcement attorney and counsel at Seward and Kissel LLP in New York, said if Musk had failed to get the tweet cleared then it may have violated the settlement. But if the SEC took action, Musk would have a "good argument" if his tweet protected shareholders by cushioning a decline in the stock price.
“Maybe by making this mini circus out of it Elon actually softened the impact on the share price because he provided an explanation to the public as to why he is selling," said Moustakis.
The billionaire, known for his Twitter banter and lively interactions with followers, was fined $20 million https://reut.rs/3bRI2eu by the SEC for tweets in 2018 and required to step down as chairman.
With his almost cult-like following, Musk has considerable power to move Tesla's stock with his comments, but murky rules make it difficult for regulators to rein him in, Reuters reported in May.
Last month, Tesla became the fifth company to reach $1 trillion in market capitalization, joining Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL).
Investors will be closely watching SEC filings from Tesla for any details on Musk's plans. SEC rules give companies four working days to report major events.
TOUGH TO BET AGAINST
Market participants expected speculators would try to front-run Musk's selling. Including stock options, Musk owns a 23% stake in the world's most valuable car company, with about 170.5 million shares as of June 30.
Still, Tesla is a tough company to bet against. Short interest in Tesla is down by about half since the start of the year as the electric car maker's share price has soared, forcing some investors betting against it to cover their positions.
Some strategists said the selling pressure on the stock may not last. "Whenever the dust settles, people always step back in, given the number of times in the grand scheme of things this company has had fairly large pullbacks," said David Madden, markets analysts at Equiti Capital.