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Elon Musk's $2-Billion SolarCity Trial Puts Control of Tesla Into Question

This could be one of the largest judgements against any individual.

Elon Musk's $2-Billion SolarCity Trial Puts Control of Tesla Into Question
Tesla CEO Elon Musk. Tesla Owners Club Belgium / Flickr

Elon Musk is facing serious allegations.

More than $2 billion is at stake in a trial starting on Monday, wherein shareholders accuse the tech billionaire of using his control of Tesla to compel the company to rescue SolarCity in 2016, in a bid to save the solar panel manufacturer (and Elon Musk's investment portfolio in the company) from financial ruin, according to an initial report from Reuters.

As of writing, Tesla has not replied to requests for comment from IE, but make no mistake: This could mark the largest blemish in Musk's long history of litigation and disputes with regulators, countries, consumers, and Twitter users.

Elon Musk benefitted from SolarCity 'bailout' deal

Asset and union pension fund managers are leading the lawsuit that could see CEO Tesla Elon Musk forced to make a $2.6 billion repayment to the company for Musk's profits on SolarCity stock. If it does, this would represent one of the largest judgments ever adjudicated against a singular human. The trial will last two weeks in the Court of Chancery in Wilmington, Delaware, and hinges on whether Musk, owner of roughly 22% of Tesla when the SolarCity deal was made, is or isn't in control of a majority stake of the all-electric automaker. "I think it's going to be very hard for the court to ignore the reality that Elon Musk is Elon Musk and his relationship with Tesla," said Professor Ann Lipton of Tulane University Law School in the Reuters report.

"Put it all together, and it might be enough to count as a controlling shareholder," added Lipton. In case you missed it, Musk has come to dominate the image of his companies more than nearly any other billionaire — as he pushes against detractors to his moves, taunts regulators, and regularly engages with 57 million followers on Twitter dot com. "We are highly dependent on the services of Elon Musk, Technoking of Tesla and our Chief Executive Officer," said the company in its 2020 annual report, according to Reuters.

Plaintiffs in the case against Musk suggest he pushed for Tesla's board to increase, not decrease, the price of SolarCity. And, financially speaking, this was good for Musk, who was the largest company shareholder (with roughly 22%), in addition to four other members of Tesla's board, each of whom owned stock in SolarCity, whether directly or indirectly. The board members have already reached a settlement with accusations in the amount of $60 million, with no wrongdoing or guilt admitted of any kind. The plaintiffs of the case against Musk also say his cousins benefitted from the SolarCity deal, since they founded it.

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Tesla CEO sees 'strong management', not control

So far, Musk has said he was "fully recused" from negotiations with the baord, and added that shareholders approved the deal in a vote because the decision had a crucial role in what he called is "Master Plan, Part Deux", which is designed to bring sustainable solar energy together with all-electric, autonomous vehicles. Contrary to the plaintiffs, Musk doesn't see control of the stock — he sees a strong management sense. "Taken to its natural conclusion, virtually all 'hands-on' and 'inspirational' CEOs with minority stock ownership would be deemed controllers," wrote his lawyers in a court filing.

This is a major case that could affect the relationship between Elon Musk's companies, the shareholders, and the billionaire. In the court papers, he claims the SolarCity deal was a major success for Tesla shareholders — pointing to a rise to $652 in the stock price after a 5-1 split in 2020, up from $37 per share upon closing the deal in November 2016. Time will tell if the courts agree with the tech billionaire's point of view.

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