Elon Musk’s $50 Billion Payday Trial: Tesla CEO Testifies in His Own Defense


Washington D.C.
CNN

Tesla CEO Elon Musk testified this morning in a shareholder lawsuit examining the huge 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 erred in awarding Musk its compensation package in 2018, which shareholders approved at the time. Tesla said at the time that he could be worth nearly $56 billion, and current net worth is $50.9 billion.

Musk took the stand at the Delaware Court of Chancery in Wilmington shortly after 9 a.m. Musk’s testimony came just as he is asserting control over Twitter, giving employees an ultimatum becoming “extremely hard”, which means “working long hours at high intensity” or leaving the company.

Musk began the day under cross-examination by his defense attorney and a lawyer for the plaintiff, where he was questioned about Tesla’s governance and time spent at the company, as well as his relationship with the board, which is supposed to be independent of Musk. and represent shareholders. Musk acknowledged his friendship with board members, including some shared family vacations. Under questioning, Musk defended himself, saying he did his duty to increase Tesla’s market value, but admitted he sometimes doesn’t seek board approval to make public statements.

The lawsuit alleges that Musk’s massive pay package was unjust enrichment and alleges that the board failed in its legal duty to act in the best interest of Tesla shareholders. The lawsuit describes Musk as a “part-time CEO” while he leads other companies. One of the contentious points in the case is whether Tesla’s board is truly independent from Musk and represents shareholders, or whether he had undue influence on the board to award him such a massive payout.

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

Musk initially denied Thursday that he was essentially trading against himself regarding how many shares he would receive in the payout package. (Trading against yourself would essentially give Musk complete control over the outcome and raise big questions about the board and whether you lived up to his fiduciary responsibilities.)

But the plaintiff’s attorney, Gregory Varallo, later reproduced part of Musk’s statement in which he said at one point about the pay package, “I guess it was me negotiating against myself.”

Musk later acknowledged saying this. It was one of several times that Varallo appeared to highlight inconsistencies in Musk’s statements, current and past.

Less than three minutes into the questioning, Musk said he believed there had been a consultation with the board of directors before his title was changed to “Technoking.”

Varallo then reproduced Musk’s statement in which Musk said he had not consulted with the board about the title change.

Musk had also said in his deposition, which was reproduced in court on Wednesday, that he was the person who came up with Tesla’s vision.

But in court on Wednesday, Musk took a different tone, objecting to being asked the question in a yes or no format.

“I think you are asking complex questions where yes or no is not possible. Yes is more accurate than no,” Musk said Wednesday. “But his question is a complex question that is commonly used to fool people.”

Varallo highlighted the degree of control Musk has over Tesla.

Musk said he did not seek approval when he recently announced a possible share buyback. He also said that he did not seek approval to claim that he saw a way for Tesla to be worth more than Apple and Saudi Aramco, the two most valuable companies in the world.

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

While the trial is focused on Musk’s compensation, lawyers for the plaintiffs asked a wide variety of questions about his tenure at Tesla. Musk protested a question about when he tweets about Tesla.

“We are in cross-examination in an interesting case, Mr. Musk,” Varallo responded. “So when your attorney wants to object, they have the right to, but unfortunately you don’t. I suspect you will if you don’t like the question.

The exchange prompted Musk to repeat his criticism of the SEC.

“The consent decree was made under duress,” Musk claimed Wednesday, referring to a 2018 settlement with the SEC over Musk’s claims that he had “funds secured” to take Tesla private at $420 a share. “An agreement made under duress is not valid as a legal basis.”

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

beach then asked if Musk had any legal training. Musk described some familiarity.

“If you’re in enough lawsuits, you learn a few things along the way,” Musk said.

Tesla executives have defended Musk’s salary package in two days of testimony so far.

“It was about motivating him to achieve things that were bold and daring and him putting his time and energy into that rather than his other interests,” Tesla Chairman Robyn Denholm testified Tuesday. Musk was interested in financing interplanetary travel, he said. Beyond Tesla, Musk is also the CEO of SpaceX and owner of Twitter, as well as leading the Boring Company, which specializes in underground tunnels, and is the founder of Neuralink, which seeks to put computer chips in people’s brains.

Musk’s compensation package goals were characterized as lofty and incredibly difficult to achieve.

Former Tesla CFO Deepak Ahuja described the plan as “extremely high risk, high reward.”

“While I believe deeply in Tesla, I felt that the difficulty level of these milestones was so high that for a mere mortal like myself, I did not find this to be a compelling incentive plan on a personal level,” Ahuja said.

Musk lobbied shareholders to approve the plan, warning that he was “very offended” by the lack of support and that those who opposed it would not be welcome at any of his companies, according to emails read in court by the plaintiff’s lawyers.

Chris Isidore contributed to this story.

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