According to Reuters, a lawsuit was recently filed by a shareholder that accuses Elon Musk – including his board of corporate waste – of unjust enrichment. The class action lawsuit states that the multi-billion dollar compensation package of the CEO and chairman of Tesla must be rescinded and the board of the company should be overhauled. And by doing so, the electronic car company would gain a better ability to protect all of its investors.
Tesla, on the other hand, said that the lawsuit has its own hidden agenda. That it basically seeks to acquire power from the company’s shareholders and “instead give it to plaintiffs lawyers.” The company, as confirmed, is expected to release an official statement anytime soon.
It is worth noting that Musk received the support of the company’s shareholders sometime in March. It was meant for a package that the company estimated to be at least $2.6 billion. But according to a Morgan Stanley analyst, the package could likely equal to a worth of $70 billion, especially if Tesla grows quickly. Sure, Musk’s pay package debunked speculation that he is about to quit, but it did not escape criticisms due to its unprecedented size. Even proxy advisory services such as ISS and Glass Lewis advised shareholders to reject the aforementioned package.
According to the complaint courtesy of Richard Tornetta, Musk’s compensation package is quite large it automatically dwarfs the pay package of all public company CEOs. The complaint was unsealed in Delaware’s Court of Chancery.
Tesla, however, ensured that Musk will not get anything unless its market value doubles. The same thing can be said if and only if the company continues to increase and subsequently becomes among the world’s most valuable companies. As for the complaint describing the pay package as something that is unfair, it was immediately redacted.
The complaint further stated that Tornetta acquired corporate records directly from Tesla, which is permitted by the Delaware corporate law. Basically, companies usually provide this type of information only if a shareholder agrees to sign a non-disclosure agreement.
The lawsuit was unsealed just a few days after shareholders rejected the proposal of a shareholder to strip Musk of his chairman role. This, in particular, is believed to be the strongest challenge yet to his grip on the Silicon Valley-based car company. Apparently, he is also facing production setbacks and expectations by a good number of analysts, suggesting that the company will soon need to raise cash.
It appears that all of Tesla’s legal woes are piling up, and all of these came at a time when the company is going through a rough patch. For instance, it failed to produce a quarter of the initial target of Model 3 vehicles (around 400,000), while its debt grew over $2 billion last year. The cost of the said car model, which was coined a “mass-market” vehicle, soared high from $35,000 to $78,000.
The case was assigned to Vice Chancellor Joseph Slights. In March, the latter ruled against the company’s requests for an early dismissal of a shareholder class action. It challenges the company’s acquisition of the renewable energy company called SolarCity Corp.
The lawsuit suggests that Musk used his power over his company’s board just so the aforementioned energy company would be acquired. In addition, the acquisition was made at a price that did not benefit Musk, who appears to be a huge shareholder in SolarCity Corp. This deal closed sometime in November 2016, though it is proceeding to trial.
Now, investors are positive that for the company to survive, it will need to raise a huge amount of money. Goldman Sachs said that the amount in question is around $10 billion and must be accumulated in the next two years, so it can also fund its expansion in China.