Tesla Investor’s Lawyers Request $6 Billion in Stock as Legal Fees in Elon Musk Pay Package Case
In a surprising turn of events, lawyers representing a Tesla Inc. investor have made an unusual request to have their legal fees paid in the form of approximately $6 billion worth of stock in the electric-car maker. This request comes after the investor successfully persuaded a judge to throw out Elon Musk’s $55.8 billion pay package, which was deemed excessive.
Attorneys for shareholder Richard Tornetta filed the request in Delaware state court, arguing that they deserve more than 29 million Tesla shares as compensation for their services. They explained their preference for stock over cash, stating, “We are prepared to ‘eat our cooking.’ This structure has the benefit of linking the award directly to the benefit created and avoids taking even one cent from the Tesla balance sheet to pay fees. It is also tax-deductible by Tesla.”
Elon Musk, the CEO of Tesla, responded to the request on his social-media platform, X, calling the lawyers who challenged him “criminal” and accusing them of causing damage to the company. Despite Musk’s strong reaction, legal experts believe that the lawyers’ request is justified given the magnitude of the case.
Tesla, with a valuation of $645 billion, is one of the largest companies in the world by market capitalization. The attorney fee request of $6 billion is unprecedented, according to Ann Lipton, a corporate law professor at Tulane University. She noted that the case involved the largest compensation award ever given to an executive, justifying the substantial fee request.
Lipton also offered her theory on why the lawyers preferred stock as payment. She suggested that if they had sought $6 billion in cash, it could have potentially crippled Tesla. Since the case revolved around a stock award to Musk, requesting payment in shares would be less burdensome for Tesla shareholders. This reasoning aligns with the lawyers’ strategy and ensures that the company’s financial stability remains intact.
As a result of the investor’s victory, approximately 267 million shares promised to Musk in his pay plan will be returned to Tesla. This development marks a significant step toward finalizing the judge’s conclusion that Tesla directors were influenced by conflicts of interest when approving Musk’s excessive compensation plan. The judge also criticized Tesla’s public disclosure regarding the pay package.
Once Chief Judge Kathaleen St. J. McCormick enters a final judgment in the case, Musk will have 30 days to decide whether to appeal her ruling under Delaware law. Despite this setback, Musk has expressed his desire to arrange another substantial stock award for himself. He believes that maintaining a significant voting control in Tesla is crucial for the company’s growth in the fields of AI and robotics. However, some experts question whether Musk’s focus on Tesla will be compromised without another super-sized pay package.
In response to the ruling, Musk has shifted all his companies, except Tesla, out of Delaware for incorporation purposes. He has also encouraged other business owners to follow suit, leading to a decrease in Delaware’s status as the corporate home to more than 70% of Fortune 500 companies.
The case, Tornetta v. Musk, is currently being heard in the Delaware Chancery Court in Wilmington. The filing of the attorney fee request brings the case closer to its final resolution, shedding light on the conflicts of interest within Tesla’s board and raising questions about executive compensation practices.
As the legal battle continues, it remains to be seen how this landmark case will shape the future of corporate governance and executive pay packages. The outcome will undoubtedly have far-reaching implications for both Tesla and the wider business community.