Tesla Settles Shareholder Lawsuit for $735M Amid Political Backlash
WILMINGTON, Del. — Tesla Inc.’s board of directors agreed Monday to return $735 million to shareholders who sued them for reaping windfall personal income off of the company’s revenue.
The lawsuit accused the auto company’s top executives of getting “outrageous” compensation packages that cost the company hundreds of millions of dollars. It also is adding to a call in Congress for regulatory action against Tesla.
The settlement money will be returned to shareholders through stocks, options and cash.
The lawsuit was filed in 2020 by the Police and Fire Retirement System of the City of Detroit, which is a significant Tesla shareholder.
It challenged stock options the company’s directors granted to themselves. They include Tesla founder Elon Musk, his brother Kimbal, Oracle Corp. Founder Larry Ellison and James Murdoch, who is the son of media mogul Rupert Murdoch.
In addition to turning over the stock to shareholders, the board agreed to modify its method for awarding executive compensation. They denied wrongdoing but said they settled the lawsuit to eliminate ongoing conflicts.
The plaintiffs claimed in court documents that Tesla executives awarded themselves compensation packages valued at an average $8.7 million each in 2018 alone. The compensation was more than 29 times higher than the average for Standard & Poor’s 500 index company boards, according to the court documents.
Tesla’s future executive compensation is supposed to be reviewed by an independent consultant under terms of the settlement.
Attorneys who filed the lawsuit said it is one of the biggest shareholder derivative settlements in the Delaware Chancery Court’s history.
The settlement with the board of directors is separate from a shareholder lawsuit that challenges the $56 billion compensation package of Elon Musk. A ruling in the case is expected soon.
Tesla designs, manufactures and sells electric vehicles. The company is valued at more than $918 billion. It reported profits last year of about $12.6 billion.
The huge settlement with shareholders coincides with calls in Congress for a possible regulatory crackdown on Musk for his corporate governance practices.
On Monday, Sen. Elizabeth Warren, D-Mass., sent the U.S. Securities and Exchange Commission a letter asking for an investigation of Musk and the rest of Tesla’s board. It asked the SEC to check into possible “conflicts of interest, misappropriation of corporate assets, and other negative impacts to Tesla shareholders” involving Musk’s $44 billion acquisition last year of social media giant Twitter.
Musk appointed himself chief executive officer of Twitter and laid off three-quarters of its staff.
The letter said Tesla’s board demonstrated an “apparent lack of independence” from Musk that might hurt shareholders, partly through “inaction and incomplete disclosures.”
Musk sold billions of dollars of Tesla stock to finance the Twitter deal.
The settlement came in the case of Police and Fire Retirement System of the City of Detroit v. Elon Musk et al. in the Court of Chancery of the state of Delaware.
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