Elon Musk will seek to prove he deserves a multibillion-dollar bailout from Tesla, in a court case brought by shareholders who accuse the electric car maker of enriching its founder and CEO for their salaries.
The world’s richest man is scheduled to testify this week in a trial that begins Monday, where he, Tesla and members of his board are said to have breached their duties by receiving to Musk’s stock options worth about $56bn.
The action in the Delaware court comes just weeks after the 51-year-old’s takeover of Twitter, adding the social media company to an ever-growing list of companies He owns companies including Tesla, SpaceX, and Neuralink. and The Boring Company.
Lawyers for Tesla investors who brought the lawsuit say Musk’s growing wealth means he’s too thin to be considered the car company’s full-time CEO, let alone one worthy of the award they say “is a low salary per person. the other CEO of a public company”. The lawsuit was filed before Musk paid $44bn for Twitter.
Musk also faces allegations that his pay package, described by the plaintiffs as “the largest . . . in human history”, was awarded in 2018 by the board ” ” made up of most of his friends, and a special board of directors will shut down the project. Attorneys representing the board members did not respond to requests for comment.
Prominent diplomatic advisers ISS and Glass Lewis criticized the package at the time, with the latter saying that “comparing the size of the grant is like stacking nickels to dollars”.
Glass Lewis also noted that Musk already owns more than a fifth of Tesla and has good incentives to grow the company.
In the end, the package – called the “CEO performance award” by Tesla – was voted by the shareholders, giving Musk 12 shares of the company’s stock, which represents the 1 percent of Tesla’s capital stock.
Eleven of the 12 shares were awarded when the automaker’s market capitalization, revenue and profitability reached certain levels.
Lawyers for the billionaire say his fair share plan is “designed to increase shareholder value by encouraging Musk to focus on turning Tesla around”. when the future of the manufacturer was still in motion.
They said that Musk did not take a financial interest in Tesla, and that the fair compensation plan served his purpose. The company’s market value has risen more than 1,200 per cent to nearly $700bn since 2018, although it has fallen by around $600bn.
“There is no equivalent director,” lawyers for Musk argued in a statement before the trial, adding that “there is no equivalent company”.
The case will be closely watched by businesses across the US, which fear a victory for Tesla shareholders could trigger a wave of similar challenges in Delaware, where most of the country’s public companies have enter.
However, Rupert Russell, a partner at the Shartsis Friese law firm, said that he did not see the Tesla case “as a model for the rest of the American industry” because of the large compensation plan and the unique position of Musk.
He added that Musk was “taking a serious risk by not deciding the case” especially after he “considered the previous cases heard by the same judge”.
This week’s trial will take place before Kathaleen McCormick, who handled the case in which Twitter accused Musk of illegally taking $44bn to buy the tech group. Musk finally agreed to pursue the sale last month, days before a court deadline to close the deal or face a November trial date.
Musk has sold nearly $20 billion of his Tesla stock since filing his takeover bid for Twitter, is sitting on billions of dollars in debt, and the billionaire says he’s losing $4 million every day. Tesla’s share price is down more than 50 percent this year.
Although the stock options granted to Musk under his compensation plan do not have a clawback provision, the plaintiffs want them revoked, which would increase the value of Tesla’s remaining stock.