Elon Musk, Tesla CEO, is scheduled to appear in court today to defend himself against a lawsuit filed by a group of Tesla shareholders. If he loses the trial, he could be forced to pay $2 billion from his vast personal fortune.
According to the lawsuit, Musk used his position as CEO to bail out SolarCity which was founded and run by his cousins Lyndon and Peter Rive. Tesla shareholders further alleged Musk and his cousins used the deal to enrich themselves “at the expense of Tesla and its minority stockholders”.
Tesla acquired SolarCity in 2016. Musk at the time of acquisition was the chairman of SolarCity and owned a 22% stake in the solar power company.
Peter Rive and Lyndon Rive, cousins of Elon Musk, founded SolarCity in 2016. The Delaware-based company sold and installed solar power energy systems to residential, commercial, and industrial customers. But in 2016, SolarCity was on the verge of bankruptcy until Tesla acquired all of its stock for $2.6 billion.
According to the suit, SolarCity “consistently failed to turn a profit, had mounting debt, and was burning through cash at an unsustainable rate”. The shareholders are asking the court to order Musk to refund Tesla’s $2.6 billion acquisition fee.
But in response, Elon Musk argues that the Tesla/SolarCity acquisition was a “stock for stock transaction” and believes the lawsuit filed by Tesla shareholders is in a way “trying to second-guess expert investors as to what the ratio of the combination would be”. Musk believes this suit will set a bad precedent and would be a “Disaster for America”.
Musk will begin his defense today at Delaware Court of Chancery in the hopes of avoiding a $2 billion fine. The trial is scheduled to last until July 23, 2021.
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