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Tesla Shareholders Defy Court to Back Musk's $56 Billion Payday · Elon Musk Podcast

• 0:01
  Hey everybody, welcome back. To the Elon Musk podcast this.
• 0:05
  Is a show where we discuss the critical crossroads, the shape
• 0:08
  SpaceX. Tesla X, The Boring Company and
• 0:12
  Neuralink. I'm your host, Will Walden.
• 0:16
  Tesla shareholders have recently voted to ratify Elon Musk's 2018
• 0:21
  stock options package, appearing to defy a previous court ruling
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  that voided the pay plan. Now, this vote comes after a
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  January ruling by Delaware Judge Kathleen McCormick, which
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  rescinded Musk's compensation package due to concerns over
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  undue influence and misleading information provided to
• 0:39
  shareholders. Now, Tesla attends that the
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  shareholder vote nullifies the court's decision, thus making a
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  new development in the ongoing legal battle over Musk's $56
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  billion pay package. Now, in January, Chancellor
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  Kathleen McCormick of Delaware's Court of Chancery invalidated
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  Musk's pay plan. The judge determined that Musk's
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  close relationships with some Tesla board members unduly
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  influenced the negotiation process.
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  Moreover, the company was found to have inadequately informed
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  shareholders about Tesla's progress toward meeting
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  performance based targets. This ruling posed a significant
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  challenge to Musk, who had been instrumental in Tesla's
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  emergence as a leader in the electric vehicle market.
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  Now, the recent shareholder vote, which took place two weeks
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  ago, approved the 2018 stock options package.
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  Tesla argues that this approval signals strong support from
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  Musk's leadership and compensation plan, effectively
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  negating the January court ruling.
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  According to Tesla's filing, the final court order should state
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  judgment is entered for the defendants indicating that the
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  company and Musk have prevailed in this legal contest.
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  However, the legal team representing the shareholders is
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  contesting this outcome. They're urging the judge to
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  uphold her original ruling and mandate that Tesla pay them
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  potentially billions of dollars in Tesla stock as legal fees.
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  Richard Tornetta, the shareholder who initiated the
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  lawsuit, has requested 29 million shares of Tesla stock,
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  that's at around $5 billion as their fee.
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  Alternatively, they have proposed a $1.1 billion payment,
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  which they argue is based on precedent but still unfairly low
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  in their view. Now, Judge McCormick has ordered
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  both parties to prepare briefs addressing the impact of the
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  shareholder vote on the case. She has also scheduled oral
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  arguments on this issue for late July or early August.
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  On July 8th, McCormick will hear arguments specifically about the
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  legal fees, with a ruling expected a few weeks later.
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  Even if she does not reverse her January ruling, she might
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  consider the shareholder vote as an indication that Tesla
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  shareholders support Musk's compensation, potentially
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  undermining the fee request from the shareholders legal team.
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  Now, Tesla's assertion in the court filing that Musk won the
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  legal battle over his pay package because of the
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  shareholder votes reflects the company's belief that this
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  approval overrides the previous court decision.
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  Tesla's filing, made public on Thursday, argues that the
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  shareholder vote should lead to a final order favoring the
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  defendants, effectively siding with Tesla and Elon Musk.
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  And the legal team for the shareholders maintains that the
• 3:17
  judge should adhere to her initial ruling invalidating
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  Musk's pay package. They're seeing seeking a
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  substantial legal fee award from Tesla, which they argue is
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  justified by the value they provided to the company by
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  having the pay package rescinded.
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  Tesla, however, contends that a fair fee might be as low as
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  $13.6 million now. On Thursday, Judge McCormick
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  directed both sides to begin preparing briefs outlining their
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  positions on how the shareholder vote affects the case.
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  She also instructed them to argue on a date for oral
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  arguments in July or early August.
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  And the judge will hear arguments about the legal fees
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  on July 8th and may take several weeks to issue her ruling.
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  Now, even if Judge McCormick does not reverse her January
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  decision, she might consider that the shareholder vote
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  demonstrated a lack of value in winning the case between Tesla
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  shareholders evidently support Musk's record-breaking
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  compensation. This could significantly weaken
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  the shareholders legal team's argument for a large fee based
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  on the purported benefit they provided by rescinding the pay
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  package. And Musk's pay package, which is
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  $56 billion, consists of performance based targets that
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  trigger stock option awards he must hold for five years before
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  exercising when the last target was achieved.
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  Now, the value of the package fluctuates with Tesla stock
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  prices, of course, which has declined by over 20% this year
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  due to weaker consumer demand for E VS.
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  Tesla's defense team, in a motion filed on June 20th,
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  argued that the shareholder ratification vote vindicates
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  Musk's stock options award. They asserted that the
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  consequences of the ratification change the litigations course,
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  in effect any potential relief and attorney fees that might be
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  awarded to the plaintiff's council.
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  Chancellor McCormick, in response to Tesla's motion,
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  wrote that she wants to conduct the hearing on the legal fees
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  without considering the shareholder vote, as a separate
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  meeting will be held to address the votes impact, she said.
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  Given that, we will hold a separate oral argument devoted
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  solely to the questions raised by the stockholder vote.
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  For the purposes of the July 8th hearing, the parties are
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  instructed to argue the points at issue without regard to the
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  stockholder vote. All arguments concerning the
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  stockholder vote will be deemed preserved now.
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  James Park, a securities regulation expert at the
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  University of California in Los Angeles, said there's an
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  importance of considering the shareholder votes impact on the
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  litigation's overall value. He said.
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  My only thought is that the defendant is correct that it
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  would be difficult to evaluate the benefit of the litigation,
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  which is necessary to evaluate the fee request, without
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  considering the impact of the shareholder ratification vote.
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  He added The Mccormick's response likely indicates that
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  she is preserving her options. Attorneys for both Tesla and
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  Tornetta, the plaintiff, have not responded to requests for
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  our comments here, and the case outcome remains uncertain, with
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  significant implications for both Musk's compensation and the
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  shareholders legal fees. Somebody's going to be paid
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  billions of dollars here now. The ongoing legal battle over
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  Musk's $56 billion pay package continues to generate
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  considerable attention, and Tesla's contention that the
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  shareholder vote nullifies the earlier court ruling adds a kind
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  of weird dimension to this dispute.
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  The final outcome will depend on the judge, of course, and how
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  they interpret the shareholders vote impact and her ruling on
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  the legal fees. But despite these challenges,
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  Musk has continued to lead Tesla forward.
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  It's challenging right now. The EV market is dwindling, and
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  the company has faced slower sales and increased competition
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  in their sales. Musk is hinted at developing
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  some new products outside Tesla if he doesn't secure a large
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  ownership stake. This is a high stakes thing
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  going on right now, and the resolution of this case will
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  likely have broader repercussions for corporate
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  governance and executive compensation practices going
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  forward. The involvement of Tesla
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  shareholders and ratifying Musk's pay package shows that
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  this is a complex matter. They have to balance this
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  between shareholders, investors and the board and Elon Musk and
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  also the courts. And as the legal proceedings
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  progress, the implications of the shareholder vote in the
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  final ruling on legal fees will be in everybody's mind and it
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  may disrupt Tesla's stock going forward.
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  So be careful out there. This isn't stock advice.
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  This isn't investment advice, but just be careful with what
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  you buy in the near term if you plan on buying Tesla 'cause this
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  could have a could have a negative or positive impact
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  depending on how this goes, so just take heed there.
• 8:13
  Hey, thank you so much for listening today.
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• 8:17
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• 8:25
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  Stage 0. And please take care of
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  yourselves and each other, and I'll see you tomorrow.