Elon Musk’s $50 billion lawsuit ends today

Washington, DC

The trial of a Tesla shareholder’s lawsuit investigating CEO Elon Musk’s unprecedented compensation package ended Friday afternoon. Chancellor Kathaleen McCormick has not made a decision from the bench, and a decision could be weeks or months away.

“We have a lot of work ahead of us,” McCormick told lawyers for both sides at the end of the trial. “I won’t bore you with the typical speech I give at this point, a solution is still possible.”

Tesla gave Musk a pay package in 2018 that helped make him the world’s richest man. The net worth of the compensation package is $50.9 billion today, as Tesla’s price rose more than 1,000% at its peak after shareholders approved the package.

Plaintiff Richard Tornetta first filed the lawsuit in June 2018, alleging that Musk used his control over Tesla and its board to receive compensation to “fund his personal ambition to colonize Mars.” The Delaware Court of Chancery heard arguments this week in Wilmington.

Tornetta and his lawyers allege that Musk and his board failed to fulfill their financial obligations to shareholders. Tesla says its board of directors oversees management, which includes Musk, and is legally responsible for shareholders’ money.

Tornetta argued that since he owns the largest share of Tesla, a large pay package is not necessary to motivate Musk.

A who’s who of Tesla insiders were heard this week, including Musk, chairman Robyn Denholm, former CFO Deepak Ahuja, former board member Antonio Gracias and board members Ira Ehrenpreis and James Murdoch.

Friday’s proceedings included testimony from expert witnesses.

Kevin Murphy, a professor at the University of Southern California’s business school, testified on behalf of Tesla and the other defendants that the pay package was reasonable. He also said that Tesla’s board members are considered independent under NASDAQ standards. The independence of the directors is the main subject of the case.

Attorneys for Tornetta emphasized the friendship between Musk and many of his board members who engineered the deal. Some have vacationed together in places like magician David Copperfield’s private island in the Bahamas, where Musk called in 2017 to determine whether his brother Kimbal and Gracias would join Tesla’s board. Murdoch, who has described himself as a friend of Elon Musk since 2006, joined them on Copperfield Island for part of the trip and joined the board shortly after.

Several corporate governance experts told CNN Business that Tesla’s board of directors is clearly not independent of Musk.

“It’s safe to say that Musk has a lot of power over the Tesla board, and probably too much power,” George S. Georgiev, a professor who studies corporate governance at Emory University’s law school, told CNN Business. “Tesla’s board has been remarkably patient despite Musk’s numerous transgressions over the years, including his skirmishes with the SEC.”

Denholm, Tesla’s chairman, said in a deposition that he was unaware of the details of how Musk handled the SEC settlement after extensive questioning. received prior approval from an “experienced securities attorney.”

Musk explained in his statement that he sends out certain tweets for confirmation and publishes them if he doesn’t hear back within an indefinite period of time. This arrangement leaves open the possibility that Musk’s tweets could be published without the required review.

Denholm first joined Tesla’s board in 2014 and became its chairman in 2018 when Musk agreed to step down following the SEC’s allegations. He testified that he interviewed Musk before joining the board of directors.

Georgiyev said that there are not many precedents related to such cases, because they were either dismissed or resolved.

Georgiev also said that this increases the possibility of an appeal to the Delaware Supreme Court, so the case may drag on. He pointed to the nearly decade-long compensation of Michael Ovitz, who was briefly Disney’s CEO.

Tesla board members who testified generally talked about the large pay package Musk needed to keep Tesla.

“He has 100 company ideas in his mind. I promise you that he did very few of them,” Gracias testified. “And we wanted him to focus. We need him to concentrate.”

Murphy, Tesla’s expert witness, also pushed back Friday on Tesla shareholders subsidizing Musk’s Mars mission.

“I don’t think that’s truer than USC subsidizing my graduation. They pay me a reasonable salary for reasonable services,” Murphy said.

He said he doesn’t feel like shareholders are particularly interested in how Musk spends his money.

“Mr. Musk being potentially incentivized by this money is a good thing for Tesla shareholders,” he said.

Musk is also the CEO of SpaceX and founded the tunneling and transit enterprise, the Boring Company, as well as Neuralink, which works to implant computer chips into brains. Musk recently bought Twitter for $44 billion and described himself as its “Chief Tweety.”

Musk’s brother Kimbal had a slightly different take on the statement. During his 2018 compensation package, Kimbal said it was “very difficult” for Elon to step down as CEO of Tesla.

“He is responsible to the company’s shareholders. That’s not how Elon works,” said Kimbal Musk.

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