Tesla CEO Elon Musk is testifying in court today in a shareholder lawsuit in Wilmington, Delaware, over the company’s $2.6 billion acquisition of solar energy company SolarCity in 2016.
Shareholders in the suit allege the deal amounted to a SolarCity bailout, suing Musk and his fellow board members, according to the lawsuit filing.
While the Tesla board members settled in late 2020 for $60 million, Musk took the fight to court and if he loses, he could have to pay upward of $2 billion, according to CNBC.
“However in this case, known as a shareholder derivative action, the suit is filed by investors on behalf of a corporation, rather than the individuals or funds themselves. If the plaintiffs win, proceeds may go to Tesla and not to the stakeholders who brought the suit,” CNBC reports.
Plaintiffs, which include several pension funds that owned Tesla stock, have characterized the deal as a scheme to benefit himself and bail out a home-solar company on the verge of insolvency, according to The Wall Street Journal.
Musk was also chairman of the SolarCity Board of Directors and SolarCity’s largest stockholder, owning approximately 21.9% of its common stock at the time of the offer, according to the 2017 lawsuit.
“Causing Tesla to bail out SolarCity, rather than let SolarCity slide into bankruptcy, would protect Elon Musk’s standing in the business community, as well as his ego,” according to the filing. “The acquisition will help preserve Musk’s reputational capital and status as not just an innovative thinker, but also a businessman who can make new technology profitable for investors. Despite any successes, SolarCity’s demise as a public company would leave Elon Musk with a professional black eye and create intense public scrutiny, as SolarCity has accepted over $1.2 billion in government subsidiaries relating to clean energy.”
Musk said in his testimony that the acquisition was not a bailout as there was no financial gain and that he didn’t put pressure on fellow board members, according to CNBC.
“Since it was a stock-for-stock transaction and I owned almost exactly the same percentage of both there was no financial gain,” Musk told his attorney on the stand, per CNBC.
A reporter from the Washington Post, who is in the courtroom, tweeted that “Plaintiffs’ attorney Randy Baron started his questioning of Musk by playing clips of the Tesla CEO saying in prior depositions that the lawsuit was “wasting everyone’s time,” and that the next few quarters would “vindicate the SolarCity deal.”
“Musk is arguing that the reason SolarCity’s growth didn’t take off as planned following the acquisition is that Tesla ended up in crisis to meet deadlines on the Model 3, and had to shift focus. And then the reason it didn’t take off after *that* is because of the pandemic,” the Washington Post reporter tweeted.
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