Elon Musk’s $50 Billion Trial Ends | CNN Business


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The trial in a Tesla stockholders’ lawsuit examining CEO Elon Musk’s unprecedented compensation package concluded Friday afternoon. Counsellor Kathleen McCormick has not issued a ruling from the court, and it could take weeks to months before a ruling is issued.

“We have a lot of work to do,” McCormick told attorneys for both sides when the trial concluded. “I will not insult you with my usual talk at this point that settlement can still be achieved.”

Tesla gave Musk a pay package in 2018 that helped make him the richest person on Earth. The compensation package has a net worth of $50.9 billion today, after Tesla’s valuation rose more than 1,000% at its peak since shareholders approved the package.

Plaintiff Richard Tornetta originally filed the lawsuit in June 2018, alleging that Musk used his control of Tesla and the board of directors to secure compensation to “finance his personal ambition to colonize Mars.” Delaware Chancery Court heard arguments this week in Wilmington.

Tornetta and his attorneys allege that Musk and the board of directors failed in their financial responsibilities to shareholders. Tesla says its board has legal responsibility for shareholder money as well as oversight of management, which includes Musk.

Tornetta argued that the huge wage package wasn’t necessary to motivate Musk because he already owns the largest stake in Tesla.

Testimony was heard this week from a Tesla insider including Musk, Chairman Robyn Denholm, former CFO Deepak Ahuja, former board member Antonio Gracias, and board members Ira Ehrenpreis and James Murdoch.

Friday’s trial included testimony from expert witnesses.

Kevin Murphy, a professor at the University of Southern California Business School, testified on behalf of Tesla and the co-defendants that the wage package was reasonable. He also said that Tesla’s board members are considered independent by NASDAQ standards. The independence of directors is a central theme of the case.

Tornita’s lawyers highlighted the friendships between Musk and several members of his board of directors who sealed the deal. Some have vacationed together to places like magician David Copperfield’s private island in the Bahamas, where Musk summoned his brother Kimball and Gracias in 2017 to determine whether James Murdoch should join Tesla’s board, according to Kimball’s affidavit shown in court this week. Murdoch, who has described himself as a friend of Elon Musk since 2006, joined them on Copperfield Island for part of the trip, joining the board of directors shortly thereafter.

Several corporate governance experts told CNN Business that Tesla’s board clearly lacks independence from Musk.

George S. Georgiev, a professor who teaches corporate governance at Emory University School of Law, told CNN Business: “It’s safe to say that Musk has a lot of power — maybe a lot of power — over Tesla’s board of directors.” “Tesla’s board has been very forgiving despite Musk’s many transgressions over the years, including his skirmishes with the SEC.”

Denholm, the Tesla chairman, revealed after extensive cross-examination in her testimony that she was unaware of the details of how Musk handled an SEC settlement that required him not to tweet about certain topics, such as Tesla’s financial condition and new lines of business, unless he obtained prior approval. From a “lawyer specializing in the field of securities.”

Musk explained in his testimony that he sends certain tweets for approval, and posts them if he is not heard from again in an indefinite period of time. This arrangement leaves open the possibility of Musk’s tweets being published without the required review.

Denholm first joined Tesla’s board in 2014 and became its chairman in 2018 when Musk agreed to step down from that position following SEC accusations. In her testimony, she said she interviewed Musk before she joined the board.

Georgiev said there is not much precedent for cases like this because they have either been dismissed or settled.

Georgiev also said this makes an appeal to the Delaware Supreme Court more likely, so the case may stretch. He pointed to the compensation case of Michael Ovitz, briefly Disney CEO, that stretched back nearly a decade.

Tesla board members who testified generally spoke of the massive pay package as necessary to keep Musk involved with Tesla.

“He has 100 company ideas in his mind. I promise you he’s done very few of them,” Gracias testified. “And we wanted him to focus. We needed him to focus.”

Murphy, Tesla’s expert witness, also on Friday disputed the idea that Tesla shareholders support Musk’s mission to Mars.

“I don’t think that’s more true than USC subsidizing my vacation. They pay me reasonable wages for reasonable services,” Murphy said.

He said he doesn’t feel shareholders have a vested interest in how Musk spends his money.

“The fact that Musk is motivated by this money is good for Tesla shareholders,” he said.

Musk is also the CEO of SpaceX and created the tunneling and transit venture, The Boring Company, as well as Neuralink, which is working to put computer chips in brains. Musk recently acquired Twitter for $44 billion, and describes himself as the “Head of Twit.”

Musk’s brother Kimball was a little different in his testimony. At the time of the 2018 compensation package, Kimball said it was “very unlikely” that Elon would step down from his role as CEO at Tesla.

He is responsible to the shareholders of the company. “That’s not how Elon works,” Kimbal Musk said.

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