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When Elon Musk wants cash, he can simply borrow money by putting up—or pledging—some of his Tesla shares as collateral for lines of credit, instead of selling shares and paying capital gains taxes. These pledged shares serve as an evergreen credit facility, giving Musk access to cash when he needs it. Musk currently has pledged 88.3 million Tesla shares, nearly 36.2% of his overall stake (excluding options), as of Wednesday worth more than $94 billion.
Musk is one of 32 billionaires identified in the Forbes 400 list of richest Americans to be pledging public stock of companies listed on the NYSE or Nasdaq exchanges as collateral for current or potential lines of credit, as disclosed in company filings. Other pledgers include fellow mega-pledger Oracle chairman Larry Ellison, Walmart heir Jim Walton, and private equity’s richest person, Stephen Schwarzman. (Three others pledged shares of foreign companies are not included in this report.)
Information on companies’ pledging policies—found in annual proxy statements—-offer a window into the murky world of billionaire borrowing. The topic entered the national microscope in June after ProPublica’s report on leaked IRS data showed that several of the richest people paid nothing in federal income taxes in certain years. Last month, a proposed wealth tax from Senate Democrat Ron Wyden failed to win political support. That measure would have taxed unrealized capital gains of America’s richest individuals.
Most details on billionaire borrowing remain private. Individuals who own less than a 5% stake in a company, or who don’t work for that company, do not report stock ownership or pledging of shares to the SEC. Many of America’s wealthiest people—232 billionaires from this year’s Forbes 400 list, to be exact—hold their fortunes primarily in private companies. Any pledges against diversified baskets of stock or private assets are not reported in company filings. Disclosure requirements also do not include reporting whether, or how much, an individual has borrowed against their pledged shares. A few billionaires Forbes contacted said they don’t have outstanding debt against their pledges.
Read the full story on Forbes: https://www.forbes.com/sites/johnhyatt/2021/11/11/how-americas-richest-people-larry-ellison-elon-musk-can-access-billions-without-selling-their-stock/?sh=92d7b2823d4e
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