Elon Musk Could Be On The Hook For $2.6 Billion

Electric Vehicles / 4 Comments

Because of the deal with Tesla and Solar City.

We think of Elon Musk and Tesla as inseparable, he was the MC at the Model S Plaid reveal event after all, but the CEO and chairman only owns 21% of the company. He owned a tick more in 2016 when the company rescued SolarCity, a solar panel and clean energy company. And that's why he could be forced to pay back more than $2 billion if this next court case doesn't go his way, as reported by Reuters.

Shareholders are alleging that Musk used his control of Tesla to save SolarCity from bankruptcy, and that he should pay the cost of the deal back to Tesla and give up his profits from the stock. Reuters notes that it would be one of the largest judgements ever against an individual. The trial will take place in Wilmington, Delaware starting Monday, July 12.

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"I think it's going to be very hard for the court to ignore the reality that Elon Musk is Elon Musk and his relationship with Tesla," said Ann Lipton, a professor at Tulane University Law School. "Put it all together and it might be enough to count as a controlling shareholder."

This situation is unique because of Musk's status, his ties to the Tesla board and other ties to SolarCity. Musk's opponents are saying that Musk pushed Tesla's board to raise the purchase price of the company. That obviously benefited the CEO, who also owned 22% of SolarCity. Making matters stickier, it was two of Musk's cousins that founded the company.

The question is whether Musk will be found to have a majority control even though he only holds a minority stake in Tesla. Musk claims that he was "fully recused" from the negotiations, but that the board approved it because the CEO wants to integrate solar panels with electric vehicles.

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"Taken to its natural conclusion, virtually all 'hands-on' and 'inspirational' CEOs with minority stock ownership would be deemed controllers," Musk's lawyers wrote in a court filing. And he is hands-on. Tesla's 2020 annual report noted that "we are highly dependent on the services of Elon Musk, Technoking of Tesla and our Chief Executive Officer.

To Musk's argument, the deal was a success for Tesla shareholders.

"If the vice chancellor thinks this deal was awful and was not effectively negotiated on behalf of the company, he'll strike it down," said Larry Hamermesh, a professor at Delaware Law School.

We'll be following this closely next week.

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Source Credits: Reuters

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