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Monday, June 24, 2024

Elon Musk’s Compensation Package, Misuse of Tesla’s Resources and Allegations of Insider Trading

By Ilene, adapted from Phil’s Webinar (6/5/24) with AI

Update: Today, Reuters reports that a shareholder, Employees’ Retirement System of Rhode Island, filed a lawsuit accusing Elon Musk of insider trading and asking the court to direct Musk to pay back the unlawful profits. 

“Musk and his brother, Kimbal Musk, a Tesla director, sold a combined $30 billion in the electric vehicle maker’s stock between late 2021 and the end of 2022, cashing in before news that would cause the stock to fall became public, according to the lawsuit…” ~ Reuters

This lawsuit comes two days before shareholders vote on reinstating Musk’s hefty compensation package that a Delaware court had previously struck down. Michael Perry, another Tesla shareholder, filed a similar suit last month.

Elon Musk, the CEO and co-founder of Tesla, has been embroiled in legal battles over his proposed $56 billion compensation package from Tesla and allegations of insider trading.

Musk’s ‘unfathomable‘ compensation package, negotiated with board members beholden to him, would have awarded Musk $56 billion. The agreement did not require the company to generate a profit, meaning that Musk could receive an enormous payout even if Tesla continued to lose money. This misalignment of incentives risks decision-making that benefits Musk rather than shareholders and the company. 

“Plaintiff Richard Tornetta is arguing in a 96-page legal brief that the board failed to perform its fiduciary duty to minority investors by green-lighting ‘the largest compensation grant in human history’—even though the grant was put to a shareholder vote and approved.

“At its heart is the issue whether Elon Musk can be considered a controlling shareholder on both sides of the transaction—as chairman of the board owning a 22% stake at the time, as well as the beneficiary of the package. If he were, the deal would be considered a conflicted transaction subject to different governance rules.

~ CHRISTIAAN HETZNER, FORTUNE

Not surprisingly, judge Kathaleen McCormick ruled in favor of the plaintiff and invalidated the agreement. Consequently, shareholders will vote again on the compensation package in two days.  

In addition to trying to resurrect his objectionable payment package, Musk recently redirected Tesla’s supply of Nvidia chips to his personal AI company. His excuse for this misappropriation is that Tesla wasn’t ready to use the chips, so they would have just sat on the shelf.

“That’s like stealing the crown jewels and saying, ‘well, the Queen only wears them once a year and I’m going to go out every weekend’,” as Phil commented in last week’s webinar.

Musk’s actions and priorities as CEO have continually come under scrutiny. In addition to misappropriating Tesla’s resources for his personal AI company, Musk has been criticized for his involvement in numerous other ventures, such as SpaceX, Hyperloop, and Twitter, now called “X,” which detract from his ability to effectively lead Tesla. Many believe that Musk should focus on building a strong, profitable company rather than chasing personal wealth and side projects.

Moreover, Tesla’s long-term viability as a car company is uncertain. The automotive industry is highly competitive, and Tesla’s success has been largely dependent on government incentives and tax credits. As other manufacturers enter the electric vehicle market, Tesla may struggle to maintain its market share and profitability.

In conclusion, Elon Musk’s proposed compensation package, misuse of company resources, insider trading allegations, and his leadership decisions raise serious concerns among Tesla’s shareholders. As the company navigates an increasingly competitive landscape, it is crucial that its leadership prioritizes the long-term interests of its shareholders and the sustainability of the business, rather than its CEO’s personal gain.

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