What seemed like a lucrative investment in 2016 for the SolarCity deal can result in one of the largest judgments in history for $13 billion. Shareholders of Tesla Inc are requesting a judge to take legal actions against Elon Musk to repay $13 billion to recoup losses on the SolarCity deal.
An attorney working on behalf of the shareholders Randy Baron made a statement during a Zoom trial, “This case has always been about whether the acquisition of SolarCity was a rescue from financial distress, a bailout, orchestrated by Elon Musk.” Closing arguments in the case recalled key findings from a 10-day trial in July 2021 as Musk spent two days testifying on the stand defending the deal.
In a lawsuit regarding the union pension funds, asset managers allege Musk strong-armed the Tesla board into approving the cash deal for SolarCity with Musk serving as the top shareholder. Musk countered the allegation with a 10-year-old master plan for creating a vertically integrated company with the goal of transforming energy consumption and generation utilizing SolarCity’s roof panels with Tesla’s line of batteries and cars.
One of Musk’s lawyers, Evan Chesler, explained during the hearing that the deal was not a bailout citing SolarCity was far from insolvent and the financial records resemble many high-growth technology companies. Chesler claims SolarCity was working on building billions of dollars in long-term value as the all-stock deal was valued at $2.6 billion in 2016 but since that time Tesla’s stock price soared.
The attorney representing the shareholders, Lee Rudy, is urging Vice Chancellor Joseph Slights III of Delaware’s Court of Chancery to order Musk to return his shares of Tesla stock that is currently valued at $13 billion. Musk disclosed the massive billion-dollar figure would be amounted to at least five times the largest award ever in comparable shareholder lawsuit saying it is a stroke of luck for the plaintiffs.
In a statement, Rudy responded to Musk’s claim saying it would be a stroke of luck for Musk if he got to keep the shares that he should never have gotten in the first place. The shareholders’ attorney Rudy says that Slight should consider Musk’s contempt for the trial process and deposition citing that he repeatedly insulted and clashed with the shareholder attorneys.
The request for Musk to return the stock from the deal is “preposterous” according to Chesler saying that it ignored five years of unprecedented success at Tesla. The news of this case resulted in a 1% drop in Tesla stock and can cause additional drops in the future as this case develops.
Tesla acquired SolarCity when the EV maker was approaching the launch of the Model 3 that served as a mass-market sedan that was critical to the financial strategy. Shareholders claim the deal was an unnecessary distraction that ultimately burdened Tesla with the financial debts and downfalls of SolarCity.
Musk’s lawyers maintain the entrepreneur had no power when it came to having power over their pays and terminating directors as well as recusing himself from price negotiations for the SolarCity deal. An attorney for Musk, Vanessa Lavely, claims “Without Elon Musk, Tesla might not exist let alone have a $1 trillion value. That doesn’t make him a controller. That makes him a highly effective CEO.”
Slights concluded the hearing with a statement that he expects to rule the judgment in three months approximately in April 2022 and intends on retiring in the coming months. A related shareholder lawsuit that challenges Musk’s record pay package was transferred from Slight to another judge.