Tag Archives: CASE1

Business

Musk expected to take stand as trial resumes over Tesla tweet

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SAN FRANCISCO Jan 20 (Reuters) – Elon Musk, Tesla Inc’s (TSLA.O) chief executive, is likely to be called to testify on Friday in a jury trial over his 2018 Twitter post that he had “funding secured” to take the electric carmaker private, which shareholders allege cost them millions in trading losses.

The class action trial in San Francisco federal court resumed with investor Timothy Fries telling the jury how he lost $5,000 buying Tesla stock after Musk sent the tweet at the center of the lawsuit.

Musk, known for combative testimony, is expected to address why he has insisted he had Saudi investor backing for the deal, which never came together, and whether he knowingly made a materially misleading statement with his tweet.

The case is a rare securities class action trial and the plaintiffs have already cleared high legal hurdles, with U.S. Judge Edward Chen ruling last year that Musk’s post was untruthful and reckless.

Shareholders alleged that Musk lied when he sent the tweet, costing investors.

Fries told the jury that funding secured meant to him that “there had been some vetting, some critical review of those funding sources.”

Musk’s attorney, Alex Spiro, told the jury in his opening statement Wednesday that Musk believed he had financing from Saudi backers and was taking steps to make the deal happen. Fearing leaks to the media, Musk tried to protect the “everyday shareholder” by sending the tweet, which contained “technical inaccuracies,” Spiro said.

Guhan Subramanian, a Harvard Law School professor, told the jury that Musk’s behavior in 2018 lacked the hallmarks of traditional corporate dealmaking by tweeting his interest in Tesla without proper financial or legal analysis.

“Compared to the standard template it’s an extreme outlier,” said Subramanian, who called Musk’s approach “unprecedented” and “incoherent.”

A jury of nine will decide whether the tweet artificially inflated Tesla’s share price by playing up the status of funding for the deal, and if so, by how much.

The defendants include current and former Tesla directors, whom Spiro said had “pure” motives in their response to Musk’s plan.

Reporting by Tom Hals in Wilmington, Del., and Jody Godoy in San Francisco; Editing by Noeleen Walder, Peter Henderson, Matthew Lewis and Daniel Wallis

Our Standards: The Thomson Reuters Trust Principles.

Jody Godoy

Thomson Reuters

Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com

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Business

Twitter’s laid-off workers cannot pursue claims via class-action lawsuit-judge

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Jan 14 (Reuters) – Twitter Inc has secured a ruling allowing the social media company to force several laid-off workers suing over their termination to pursue their claims via individual arbitration than a class-action lawsuit.

U.S. District Judge James Donato on Friday ruled that five former Twitter employees pursuing a proposed class action accusing the company of failing to give adequate notice before laying them off after its acquisition by Elon Musk must pursue their claims in private arbitration.

Donato granted Twitter’s request to force the five ex-employees to pursue their claims individually, citing agreements they signed with the company.

Twitter did not immediately respond to a request for comment.

The San Francisco judge left for another day “as warranted by developments in the case” whether the entire class action lawsuit must be dismissed, though, as he noted three other former Twitter employees who alleged they had opted out of the company’s arbitration agreement have joined the lawsuit after it was first filed.

The lawyer who represents the plaintiffs, Shannon Liss-Riordan, said on Monday that she had already filed 300 demands for arbitration on behalf of former Twitter employees and would likely file hundreds more.

Those workers all claim they have not received the full severance package promised by Twitter before Musk took over. Some have also alleged sex or disability discrimination.

Last year, Donato had ruled that Twitter must notify the thousands of workers who were laid off after its acquisition by Musk following a proposed class action accusing the company of failing to give adequate notice before terminating them.

The judge said that before asking workers to sign severance agreements waiving their ability to sue the company, Twitter must give them “a succinct and plainly worded notice”.

Twitter laid off roughly 3,700 employees in early November in a cost-cutting measure by Musk, and hundreds more subsequently resigned.

In December last year, Twitter was also accused by dozens of former employees of various legal violations stemming from Musk’s takeover of the company, including targeting women for layoffs and failing to pay promised severance.

Twitter is also facing at least three complaints filed with a U.S. labor board claiming workers were fired for criticizing the company, attempting to organize a strike, and other conduct protected by federal labor law.

Reporting by Mrinmay Dey in Bengaluru, Nate Raymond in Boston, and Daniel Wiessner in Albany, New York, Editing by Angus MacSwan and Deepa Babington

Our Standards: The Thomson Reuters Trust Principles.

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Business

Facebook parent Meta to settle Cambridge Analytica case for $725 million

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Dec 23 (Reuters) – Facebook owner Meta Platforms Inc (META.O) has agreed to pay $725 million to resolve a class-action lawsuit accusing the social media giant of allowing third parties, including Cambridge Analytica, to access users’ personal information.

The proposed settlement, which was disclosed in a court filing late on Thursday, would resolve a long-running lawsuit prompted by revelations in 2018 that Facebook had allowed the British political consulting firm Cambridge Analytica to access data of as many as 87 million users.

Lawyers for the plaintiffs called the proposed settlement the largest to ever be achieved in a U.S. data privacy class action and the most that Meta has ever paid to resolve a class action lawsuit.

“This historic settlement will provide meaningful relief to the class in this complex and novel privacy case,” the lead lawyers for the plaintiffs, Derek Loeser and Lesley Weaver, said in a joint statement.

Meta did not admit wrongdoing as part of the settlement, which is subject to the approval of a federal judge in San Francisco. The company said in a statement settling was “in the best interest of our community and shareholders.”

“Over the last three years we revamped our approach to privacy and implemented a comprehensive privacy program,” Meta said.

Cambridge Analytica, now defunct, worked for Donald Trump’s successful presidential campaign in 2016, and gained access to the personal information from millions of Facebook accounts for the purposes of voter profiling and targeting.

Cambridge Analytica obtained that information without users’ consent from a researcher who had been allowed by Facebook to deploy an app on its social media network that harvested data from millions of its users.

The ensuing Cambridge Analytica scandal fueled government investigations into its privacy practices, lawsuits and a high-profile U.S. congressional hearing where Meta Chief Executive Mark Zuckerberg was grilled by lawmakers.

In 2019, Facebook agreed to pay $5 billion to resolve a Federal Trade Commission probe into its privacy practices and $100 million to settle U.S. Securities and Exchange Commission claims that it misled investors about the misuse of users’ data.

Investigations by state attorneys general are ongoing, and the company is fighting a lawsuit by the attorney general for Washington, D.C.

Thursday’s settlement resolved claims by Facebook users that the company violated various federal and state laws by letting app developers and business partners harvest their personal data without their consent on a widespread basis.

The users’ lawyers alleged that Facebook misled them into thinking they could keep control over personal data, when in fact it let thousands of preferred outsiders gain access.

Facebook argued its users have no legitimate privacy interest in information they shared with friends on social media. But U.S. District Judge Vince Chhabria called that view “so wrong” and in 2019 largely allowed the case to move forward.

Reporting by Nate Raymond in Boston; Editing by Muralikumar Anantharaman

Our Standards: The Thomson Reuters Trust Principles.

Nate Raymond

Thomson Reuters

Nate Raymond reports on the federal judiciary and litigation. He can be reached at nate.raymond@thomsonreuters.com.

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Business

Facebook parent Meta to settle Cambridge Analytica scandal case for $725 mln

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Dec 23 (Reuters) – Facebook owner Meta Platforms Inc (META.O) has agreed to pay $725 million to resolve a class-action lawsuit accusing the social media giant of allowing third parties, including Cambridge Analytica, to access users’ personal information.

The proposed settlement, which was disclosed in a court filing late on Thursday, would resolve a long-running lawsuit prompted by revelations in 2018 that Facebook had allowed the British political consulting firm Cambridge Analytica to access data of as many as 87 million users.

Lawyers for the plaintiffs called the proposed settlement the largest to ever be achieved in a U.S. data privacy class action and the most that Meta has ever paid to resolve a class action lawsuit.

“This historic settlement will provide meaningful relief to the class in this complex and novel privacy case,” the lead lawyers for the plaintiffs, Derek Loeser and Lesley Weaver, said in a joint statement.

Meta did not admit wrongdoing as part of the settlement, which is subject to the approval of a federal judge in San Francisco. The company said in a statement settling was “in the best interest of our community and shareholders.”

“Over the last three years we revamped our approach to privacy and implemented a comprehensive privacy program,” Meta said.

Cambridge Analytica, now defunct, worked for Donald Trump’s successful presidential campaign in 2016, and gained access to the personal information from millions of Facebook accounts for the purposes of voter profiling and targeting.

Cambridge Analytica obtained that information without users’ consent from a researcher who had been allowed by Facebook to deploy an app on its social media network that harvested data from millions of its users.

The ensuing Cambridge Analytica scandal fueled government investigations into its privacy practices, lawsuits and a high-profile U.S. congressional hearing where Meta Chief Executive Mark Zuckerberg was grilled by lawmakers.

In 2019, Facebook agreed to pay $5 billion to resolve a Federal Trade Commission probe into its privacy practices and $100 million to settle U.S. Securities and Exchange Commission claims that it misled investors about the misuse of users’ data.

Investigations by state attorneys general are ongoing, and the company is fighting a lawsuit by the attorney general for Washington, D.C.

Thursday’s settlement resolved claims by Facebook users that the company violated various federal and state laws by letting app developers and business partners harvest their personal data without their consent on a widespread basis.

The users’ lawyers alleged that Facebook misled them into thinking they could keep control over personal data, when in fact it let thousands of preferred outsiders gain access.

Facebook argued its users have no legitimate privacy interest in information they shared with friends on social media. But U.S. District Judge Vince Chhabria called that view “so wrong” and in 2019 largely allowed the case to move forward.

Reporting by Nate Raymond in Boston; Editing by Muralikumar Anantharaman

Our Standards: The Thomson Reuters Trust Principles.

Nate Raymond

Thomson Reuters

Nate Raymond reports on the federal judiciary and litigation. He can be reached at nate.raymond@thomsonreuters.com.

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Technology

Video gamers sue Microsoft in U.S. court to stop Activision takeover

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Dec 20 (Reuters) – Microsoft Corp (MSFT.O) was hit on Tuesday in U.S. court with a private consumer lawsuit claiming the technology company’s $69 billion bid to purchase “Call of Duty” maker Activision Blizzard Inc (ATVI.O) will unlawfully squelch competition in the video game industry.

The complaint filed in federal court in California comes about two weeks after the U.S. Federal Trade Commission filed a case with an administrative law judge seeking to stop Microsoft, owner of the Xbox console, from completing the largest-ever acquisition in the video-gaming market.

The private lawsuit also seeks an order blocking Microsoft from acquiring Activision. It was filed on behalf of 10 video game players in California, New Mexico and New Jersey.

The proposed acquisition would give Microsoft “far-outsized market power in the video game industry,” the complaint alleged, “with the ability to foreclose rivals, limit output, reduce consumer choice, raise prices, and further inhibit competition.”

Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard logo in this illustration taken January 18, 2022. REUTERS/Dado Ruvic/Illustration

A Microsoft representative on Tuesday defended the deal, saying in a statement that it “will expand competition and create more opportunities for gamers and game developers.” After the FTC sued, Microsoft President Brad Smith said, “We have complete confidence in our case and welcome the opportunity to present our case in court.”

In a statement, plaintiffs’ attorney Joseph Saveri in San Francisco said, “As the video game industry continues to grow and evolve, it’s critical that we protect the market from monopolistic mergers that will harm consumers in the long run.”

Private plaintiffs can pursue antitrust claims in U.S. court, even while a related U.S. agency case is pending. The takeover, announced in January, also faces antitrust scrutiny in the European Union.

The FTC previously said it sued to stop “Microsoft from gaining control over a leading independent game studio.” The agency said the merger would harm competition among rival gaming platforms from Nintendo Co Ltd (7974.T) and Sony Group Corp (6758.T).

Reporting by Mike Scarcella; editing by Leigh Jones, Cynthia Osterman and Jonathan Oatis

Our Standards: The Thomson Reuters Trust Principles.

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US

Trump Organization found guilty of tax fraud scheme

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NEW YORK, Dec 6 (Reuters) – Donald Trump’s real estate company was convicted on Tuesday of carrying out a 15-year-long criminal scheme to defraud tax authorities, adding to the legal woes facing the former U.S. president as he campaigns for the office again in 2024.

The Trump Organization – which operates hotels, golf courses, and other real estate around the world – was found guilty of paying personal expenses for top executives including former chief financial officer Allen Weisselberg, and issuing bonus checks to them as if they were independent contractors.

The company faces up to $1.6 million in fines after being convicted on all charges, including scheming to defraud tax authorities, conspiracy and falsifying business records. Trump was not charged in the case.

Justice Juan Merchan, who presided over the trial in state court in New York, set a sentencing date for Jan. 13.

While the fine is not expected to be material for a company of the Trump Organization’s size, the conviction could complicate its ability to do business.

Weisselberg, 75, testified as the government’s star witness as part of a plea deal that calls for a sentence of five months in jail.

Manhattan District Attorney Alvin Bragg, whose office prosecuted the case, called the verdict “very just.”

“The former president’s companies now stand convicted of crimes,” Bragg said in the New York courthouse after the verdict, speaking of the Trump Corporation and Trump Payroll Corporation, the two units of the Trump Organization which were convicted.

Asked if he regretted not charging Trump in the case, Bragg did not respond.

He has said that the office’s investigation into Trump is continuing.

APPEAL

Alan Futerfas, a lawyer for the Trump Organization, said the company would appeal and that the criminal law governing corporate liability was vague.

“It was central to the case,” he told reporters after the verdict.

The jury deliberated for about 12 hours over two days.

[1/6] Former U.S. President Donald Trump attends a rally to support Republican candidates ahead of midterm elections, in Dayton, Ohio, U.S. November 7, 2022. REUTERS/Gaelen Morse/File Photo

The case centered on charges that the company paid personal expenses like free rent and car leases for executives including Weisselberg without reporting the income, and gave them bonuses as non-employee compensation from other Trump entities like the Mar-a-lago Club, without deducting taxes.

According to testimony during the four-week trial, Trump himself signed the bonus checks annually, paid private school tuition for Weisselberg’s grandchildren, authorized the lease for his luxury Manhattan apartment and approved a salary deduction for another executive.

“The whole narrative that Donald Trump was blissfully ignorant is just not real, prosecutor Joshua Steinglass told jurors during his closing argument on Friday.

He said the “smorgasbord of benefits” was designed to keep top executives “happy and loyal.”

Republican Trump, who on Nov. 15 announced his third campaign for the presidency, said in a statement he was “disappointed” by the verdict but called the case a “Manhattan witch hunt.” Both Bragg and his predecessor who brought the charges, Cyrus Vance, are Democrats.

SEPARATE LAWSUIT

The Trump Organization separately faces a fraud lawsuit brought by New York state Attorney General Letitia James.

Trump himself is being investigated by the U.S. Department of Justice over his handling of sensitive government documents after he left office in January 2021 and attempts to overturn the November 2020 election, which he lost to Democrat Joe Biden.

Lawyers for the Trump Organization argued that Weisselberg carried out the scheme to benefit himself, not the company. They tried to paint him as a rogue employee. Weisselberg is currently on paid leave and testified that he hopes to get another $500,000 bonus in January

Trump wrote on his Truth Social platform on Nov. 19. that his family got “no economic gain from the acts done by the executive.”

Weisselberg, who pleaded guilty in August to concealing $1.76 million in income from tax authorities, testified that although Trump signed checks involved, he did not conspire with him.

He said that the company saved money by paying for his rent, utilities, Mercedes-Benz car leases for him and his wife and other personal expenses rather than raising his salary, because a wage hike would have had to account for taxes.

He said Trump’s two sons – who took over the company’s operations in 2017 – gave him a raise after they knew about his tax dodge scheme.

By then, Trump was president, and the company was preparing for greater scrutiny.

“We were going through an entire cleanup process of the company to make sure that since Mr. Trump is now president everything was being done properly,” Weisselberg testified.

Reporting by Luc Cohen and Karen Freifeld in New York; additional reporting by Andrew Hofstetter in New York; Editing by Noeleen Walder and Grant McCool

Our Standards: The Thomson Reuters Trust Principles.

Luc Cohen

Thomson Reuters

Reports on the New York federal courts. Previously worked as a correspondent in Venezuela and Argentina.

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US

Trump rebuffed by judge in New York fraud lawsuit, trial date set

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NEW YORK, Nov 22 (Reuters) – A New York judge has scheduled an October 2023 trial for former U.S. President Donald Trump, three of his adult children and the Trump Organization in a lawsuit brought by New York Attorney General Letitia James accusing them of fraudulently overvaluing the real estate company’s assets and Trump’s net worth.

Justice Arthur Engoron of the state Supreme Court in Manhattan set the trial date during a contentious hearing on Tuesday following motions by the Trumps the night before to have the civil lawsuit dismissed.

“I ruled on all these issues. It seems to me the facts are the same. The law is the same. Parties are the same,” Engoron told Alina Habba, Trump’s lawyer. “You can’t keep making the same argument after you’ve already lost.”

Habba had accused the judge of bias. Trump, a Republican, has accused James, a Democrat, of suing him because she dislikes him and his politics.

In her lawsuit filed on Sept. 21, James accused Trump, his company, his children Donald Jr, Eric and Ivanka and others of inflating Trump’s assets by billions of dollars in a decade of lies to banks and insurers. James called the fraud “staggering.”

The complaint seeks $250 million in damages. It also seeks to stop the Trumps from running businesses in the state and ban Trump and his company from acquiring New York real estate for five years.

Engoron is expected to rule on the motions to dismiss by early January. Trump is already appealing Engoron’s order requiring an independent watchdog to monitor his company.

The trial, scheduled for Oct. 2, 2023, and other legal issues could complicate Trump’s campaign, announced last week, for the presidency in 2024.

The Trump Organization is now on trial in another Manhattan courtroom on criminal tax fraud charges.

In addition, U.S. Attorney General Merrick Garland last week named a special counsel to oversee two criminal investigations, one related to the FBI’s seizure of government documents from Trump’s Florida home and the other examining Trump’s role in efforts to overturn the 2020 presidential election.

Trump also faces a criminal investigation in Georgia into whether he interfered with the 2020 election results in that state.

He has called these cases and investigations politically motivated, and has labeled Engoron a “puppet judge” for James.

In seeking to dismiss the case filed by James, Trump maintained that the attorney general lacked authority to pursue a lawsuit designed to “get” him when neither the public nor the marketplace was harmed.

“Who stands to gain from this highly-politicized farse [sic], aside from the politically-compromised Attorney General of the State of New York?” Trump’s filing said.

Other defendants also urged dismissals.

Lawyers for Trump’s sons called the lawsuit a “textbook example of throwing everything at the wall to see what sticks.” Ivanka Trump’s lawyers said there were no allegations that she lied to or defrauded anyone.

The Trump Organization’s former longtime Chief Financial Officer Allen Weisselberg and its Controller Jeffrey McConney also sought dismissals of claims against them. Both testified as prosecution witnesses in the Manhattan criminal trial in which prosecutors accused the company of engaging in tax fraud spanning 15 years.

Reporting by Karen Freifeld and Jonathan Stempel in New York; Editing by Will Dunham

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Business

Elon Musk trial opens to decide fate of his $56 billion Tesla pay

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WILMINGTON, Del, Nov 14 (Reuters) – A trial opened Monday over shareholder allegations that Tesla Inc Chief Executive Elon Musk’s $56 billion pay package was rigged with easy performance targets and that investors were duped into approving it, with Musk slated to take the stand later this week.

A Tesla (TSLA.O) shareholder hopes to prove during the five-day trial that Musk used his dominance over the electric vehicle maker’s board to dictate terms of the 2018 package, which did not even require him to work at Tesla full-time.

Musk, the world’s richest person, will testify Wednesday, Greg Varallo, an attorney for shareholder Richard Tornetta, told a court in Wilmington, Delaware, on Monday.

The trial began with Ira Ehrenpreis, a Tesla board member since 2007, taking the stand to describe the early years of the company and Musk’s role.

“I was very impressed with his vision for this endeavor,” said Ehrenpreis.

Tornetta has asked the court to rescind the pay package, which is six times larger than the top 200 CEO salaries combined in 2021, according to Amit Batish of research firm Equilar.

Musk and Tesla’s directors, who are also defendants, have denied the allegations. They argued the pay package did what it aimed to do — ensure that the entrepreneur successfully guided Tesla through a critical period, which helped drive the stock tenfold higher.

The case will be decided by Chancellor Kathaleen McCormick of Delaware’s Court of Chancery. She oversaw the legal dispute between Twitter Inc (TWTR.MX) and Musk that ended with his purchase of the social media platform for $44 billion last month.

The Tesla shareholder lawsuit argues that the pay package should have required Musk to work full-time at Tesla. The company’s shareholders have become concerned that Musk is distracted by Twitter, which he has warned might not survive an economic downturn.

Musk told a business conference on the sidelines of the G20 summit in Bali, Indonesia, on Monday that he had too much on his plate at the moment.

Legal experts said Musk is in a better legal position in the pay case than he was in Twitter’s lawsuit, which prevented him from walking away from the takeover.

Boards have wide latitude to set executive compensation, according to legal experts.

However, directors must meet more stringent legal tests if the pay package involves a controlling shareholder, and part of this trial is likely to focus on whether that description fits Musk. While he owned only 21.9% of Tesla in 2018, plaintiffs are likely to cite what is seen as his domineering personality and ties to directors.

In all, 19 witnesses are scheduled to testify, including directors and executives from 2018, compensation experts, and advisors who helped craft the pay package.

The disputed package allows Musk to buy 1% of Tesla’s stock at a deep discount each time escalating performance and financial targets are met. Otherwise, Musk gets nothing.

Tesla has hit 11 of the 12 targets as its value ballooned briefly to more than $1 trillion from $50 billion, according to court papers.

A decision will likely take around three months after the trial and could be appealed to the Delaware Supreme Court.

Reporting by Tom Hals in Wilmington, Delaware; Editing by David Gregorio and Jonathan Oatis

Our Standards: The Thomson Reuters Trust Principles.

Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.

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Entertainment

Alec Baldwin files lawsuit in deadly ‘Rust’ shooting

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Nov 11 (Reuters) – Actor Alec Baldwin filed a lawsuit on Friday against the armorer and three other crew members over the deadly shooting on the set of the Western movie “Rust,” in which a gun that Baldwin was using during rehearsal killed cinematographer Halyna Hutchins.

Baldwin’s suit was filed in Los Angeles County Superior Court as a cross complaint stemming from a previous suit in which a different member of the crew named Baldwin and the others as defendants.

It is one of many pieces of litigation stemming from the tragedy of Oct. 21, 2021, which is also under criminal investigation and could result in New Mexico state charges.

Baldwin’s cross complaint names armorer Hannah Gutierrez-Reed, first assistant director Dave Halls, prop supplier Seth Kenney and prop master Sarah Zachry.

An attorney for Gutierrez-Reed, Jason Bowles, said in an email on Saturday that, “Baldwin is responsible for this tragedy.”

Attorneys for Halls and Kenney did not immediately respond to requests for statements in their clients’ defense. Reuters could not locate an attorney for Zachry.

All four were also named as defendants along with Baldwin in the original lawsuit filed by a script supervisor who claimed the shooting caused her severe emotional distress.

Baldwin’s cross complaint alleges negligence and seeks damages to be determined at trial for the “immense grief” he endures.

“This tragedy happened because live bullets were delivered to the set and loaded into the gun, Gutierrez-Reed failed to check the bullets or the gun carefully, Halls failed to check the gun carefully and yet announced the gun was safe before handing it to Baldwin, and Zachry failed to disclose that Gutierrez-Reed had been acting recklessly off set and was a safety risk to those around her,” Baldwin’s cross complaint said.

The suit was written by Luke Nikas, an attorney for Baldwin who is with the firm Quinn Emanuel.

Hutchins was killed when a revolver Baldwin was rehearsing with during filming in New Mexico fired a live round that hit her and movie director Joel Souza, who survived.

In a television interview, the actor said he did not pull the trigger of the Colt .45 revolver and it fired after he cocked it.

An FBI forensic test of the single-action revolver found it “functioned normally” and would not fire without the trigger being pulled.

Reporting by Daniel Trotta; Editing by Leslie Adler and Daniel Wallis

Our Standards: The Thomson Reuters Trust Principles.

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Business

As Musk focuses on Twitter, his $56 billion Tesla pay goes to trial

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WILMINGTON, Del., Nov 7 (Reuters) – As Elon Musk is engulfed in his overhaul of Twitter, the entrepreneur is headed to trial to defend his record $56 billion Tesla Inc pay package against claims it unjustly enriches him without requiring his full-time presence at the carmaker.

A Tesla (TSLA.O) shareholder is seeking to rescind Musk’s 2018 pay deal, claiming the board set easy performance targets and that Musk created the package to fund his dream of colonizing Mars.

Tesla has countered that the package delivered an extraordinary 10-fold increase in value to shareholders.

The trial begins Nov. 14 and will be decided by Kathaleen McCormick on Delaware’s Court of Chancery. She oversaw Twitter’s lawsuit against Musk that ended last month when he agreed to close his $44-billion deal for Twitter, an acquisition which he financed largely with his Tesla stock.

“If Musk loses this pay package in some massive way, I think we can expect to see a lot of things that are going to be really hard to predict, like what happens going forward in terms of how Tesla is run and how Twitter is paid for,” said Ann Lipton, a professor at Tulane Law School.

However, Lipton and other legal experts said the lawsuit by Tesla shareholder Richard Tornetta is going to be much more difficult than Twitter’s case against Musk.

Musk founded and is CEO of SpaceX, one of the world’s most valuable private companies, and founded or co-founded Neuralink, which makes brain implants, tunneling venture The Boring Co, and OpenAI, an artificial intelligence research lab. Last week, he appointed himself Twitter CEO.

‘PART-TIME CEO’

Tornetta’s lawyers argue the 2018 package failed its stated purpose of focusing Musk on Tesla. They portray Musk as a “part-time CEO,” citing his testimony that in 2018 he worked Tuesday, Wednesday and Friday at the electric carmaker and Monday and Thursday at rocket company SpaceX, according to his deposition.

According to the lawsuit, Tesla’s board chair Robyn Denholm said the “minimal time” Musk was at Tesla was “becoming more and more problematic” in a 2018 email to Gabrielle Toledano, who at the time was the Tesla Chief People Officer.

The company has argued the package was not about requiring Musk to punch a clock and be on site specific hours each week, but to hit “audacious” targets, enriching Musk but also shareholders like Tornetta.

[1/2] SpaceX Chief Engineer Elon Musk gestures during a joint news conference with T-Mobile CEO Mike Sievert at the SpaceX Starbase, in Brownsville, Texas, U.S., August 25, 2022. REUTERS/Adrees Latif

The disputed pay package allows Musk to buy 1% of Tesla’s stock at a deep discount each time escalating performance and financial targets are met; otherwise Musk gets nothing. Tesla has hit 11 of the 12 targets as its value ballooned to $650 billion from $50 billion on the back of ramped up Model 3 production, according to court papers.

Musk’s vested grants are worth around $50 billion, according to Amit Batish at Equilar, an executive pay research firm. The grants contribute to his $200-billion fortune, the world’s largest.

Musk’s package of stock grants is larger than the combined pay of the 200 highest-paid CEOs last year – six times over, according to Batish.

The trial is likely to focus on Tornetta’s claims the package was developed and approved by directors beholden to Musk and promoted to shareholders without revealing the first tranches were probable of being met based on internal projections.

BOARD CONTROL

Tornetta’s filings are full of examples of a board controlled by Musk.

For example, Antonio Gracias, described by the plaintiff as a close friend of Musk and who was lead independent director from 2010-19, testified in his 2021 deposition that Musk could sell Tesla if he wanted and the board could not stop him.

“Who worked for who? Does Elon Musk work for the board or does the board work for Elon Musk,” said Minor Myers, a professor at UConn School of Law.

Myers said if the pay package is rescinded, the board could simply create a new one and do so with McCormick’s ruling to guide them.

But circumstances have changed, complicating the process.

“He now owns Twitter. How do they want to factor that in?” said Myers, who added that it will be a challenge to determine how to keep Musk from being distracted by other ventures.

“How much money do they need to put in front of this guy to get his attention,” he said.

Reporting by Tom Hals in Wilmington, Delaware; additional reporting by Hyun Joo Jin in San Francisco
Editing by Noeleen Walder and Nick Zieminski

Our Standards: The Thomson Reuters Trust Principles.

Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.

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