Elon Musk’s $50B payday trial: Tesla CEO testifies in his own defense


Washington, D.C
CNN

Tesla CEO Elon Musk testified this morning in a shareholder lawsuit Investigating the massive compensation package that helped make him the richest person in the world.

Tesla is being sued by plaintiff Richard J. Tornetta, who says the company wrongly awarded Musk his compensation package in 2018, which shareholders approved at the time. Tesla said at the time it could be worth nearly $56 billion, and the net worth today is $50.9 billion.

Musk testified just after 9:00 a.m. outside the Delaware Court of Chancery in Wilmington an ultimatum Going “extremely hardcore,” meaning “working long hours at high intensity,” or leaving the company.

Musk began the day by interviewing his defense attorney and one of the plaintiff’s attorneys, where they asked him about Tesla’s leadership and time at the company, as well as his relationship with the board, which is said to be independent of Musk and represents shareholders. Musk confirmed his friendship with board members, including some family vacations together. When asked, Musk defended himself, saying he had a duty to increase Tesla’s market value, but acknowledged that he sometimes doesn’t get board approval for public statements.

The lawsuit alleges that Musk’s huge pay package was unfair enrichment and that the board failed to fulfill its legal duty to act in the best interests of Tesla shareholders. The lawsuit describes Musk as a “part-time CEO” because he runs other businesses. One of the bones of contention in the case is whether Tesla’s board is truly independent of Musk and represents shareholders, or whether he had undue influence on the board to award it such a massive payday.

Musk himself controls more than 20% of all outstanding Tesla shares, including unexercised options.

Musk initially denied Thursday that he was essentially negotiating against himself over how much of the pay package he would receive. (Negotiating against himself would essentially give Musk total control of the outcome and raise big questions about the board and whether it is fulfilling its fiduciary responsibilities.)

But the plaintiff’s attorney, Gregory Varallo, then repeated some of Musk’s testimony, in which he said at one point regarding the pay package, “That was, I believe, negotiating against myself.”

Musk then admitted to saying so. It was one of several occasions when Varallo appeared to highlight inconsistencies in Musk’s current and past statements.

Less than three minutes after being questioned, Musk said he believes there was consultation with the board before his title was changed to “Technoking.”

Varallo then played Musk’s statement, in which Musk said he did not consult with the board about the title change.

Musk also said in his testimony, repeated in court Wednesday, that he was the person who had the vision for Tesla.

But in court on Wednesday, Musk took a different tack, declining to put the question in a yes-no format.

“I think you’re asking complex questions where yes or no isn’t possible. Yes is more accurate than no,” Musk said on Wednesday. “But your question is a complex question that is often used to mislead people.”

Tesla CEO Elon Musk testifies before German Chancellor Kathaleen McCormick in Wilmington, Delaware.

Varallo highlighted the level of control Musk has over Tesla.

Musk said he didn’t seek approval when he recently announced a potential share buyback. He also said he wasn’t seeking endorsement for saying he saw a way Tesla was worth more than Apple and Saudi Aramco, the two most valuable companies in the world.

Plaintiff’s attorneys this week described the package as close to the gross domestic product of the entire state of Delaware and far more expensive than building the World Trade Center. They also compared Musk’s compensation to the average Tesla salary, which they believe is $40,000.

As the lawsuit focuses on Musk’s compensation, plaintiffs’ attorneys have asked a variety of questions about his leadership of Tesla. Musk protested a question about when he tweeted about Tesla.

“We’re being cross-examined on an interesting case, Mr. Musk,” Varallo retorted. “Well, if your lawyer wants to object, he has the right to do so, but unfortunately you don’t. I suspect he will if he doesn’t like the question.”

The exchange resulted in Musk repeating his criticism of the SEC.

“The consent decree was issued under duress,” Musk claimed Wednesday, referring to a 2018 settlement with the SEC over Musk’s claims that he “secured the financing” to privatize Tesla for $420 a share. “An agreement made under duress is not considered a legal basis.”

At a TED conference earlier this year, Musk said he only agreed to a settlement because Tesla’s banks stopped funding at a time when they needed cash if he continued fighting the SEC. “I was forced [to lie] to save Tesla’s life, and that’s the only reason,” Musk said at the April event.

So Varallo asked if Musk had any legal training. Musk described a certain familiarity.

“If you’re caught up in enough court cases, catch up on a few things along the way,” Musk said.

Tesla executives have defended Musk’s pay package in two days of negotiations so far.

“It was about motivating him to do things that were bold and bold and that he put his time and energy into it, as opposed to his other interests,” Robyn Denholm, Tesla CEO, testified Tuesday. Musk is interested in funding interplanetary travel, she said. Besides Tesla, Musk is also CEO of SpaceX and owner of Twitter, head of Boring Company, which specializes in underground tunneling, and he is the founder of Neuralink, which is trying to put computer chips in people’s brains.

Tesla board member James Murdoch, son of media magnate Rupert Murdoch, testified Wednesday that Musk had discussed someone who would replace him as the automaker’s CEO.

An attorney for the plaintiffs asked Murdoch if Musk had ever identified “someone as a potential successor” as Tesla’s CEO.

“Indeed he did,” Murdoch replied. “But it’s between the time you made that statement and now,” referring to Murdoch’s pre-trial testimony. Murdoch clarified that the conversation took place in the last few months.

Murdoch said Musk never suggested to him that he might leave Tesla anytime soon. And Murdoch said he wasn’t aware that Musk had suggested anyone else to leave Tesla soon.

Murdoch did not reveal any further details about who could be a possible successor to Musk. Musk has contemplated leaving his role at Tesla for years.

Tesla executives and board members like Murdoch have called the rewards package goals lofty and incredibly difficult to achieve.

Former Tesla chief financial officer Deepak Ahuja on Tuesday described the plan as “extremely risky, highly rewarding.”

“While I am a deep believer in Tesla, I found the difficulty of these milestones to be so high that on a personal level, for a mere mortal like myself, I didn’t find this a compelling incentive plan,” Ahuja said.

According to emails read by plaintiff’s lawyers in court, Musk pushed for shareholders to approve the plan, warning that he was “very offended” by a lack of support and those opposed to none of his companies are welcome.

Chris Isidore contributed to this story.

Leave a Reply

Your email address will not be published. Required fields are marked *