A judge in Delaware has invalidated the massive $55.8 billion pay deal awarded to Elon Musk by Tesla in 2018.
The lawsuit challenging the deal was brought forth by a shareholder who argued that the payment was excessive.
The judge, Kathleen McCormick, determined that the Tesla board’s approval of the pay package was deeply flawed.
During the trial, Tesla directors contended that the extraordinary compensation was necessary to ensure Elon Musk’s continued commitment to the company.
However, Judge McCormick found that Tesla and Musk’s legal team failed to demonstrate that the stockholder vote was fully informed.
She also highlighted Musk’s extensive ties with those negotiating on behalf of Tesla, raising questions about the fairness of the deal.
In her 200-page ruling, Judge McCormick described the compensation as an “unfathomable sum” that did not align with the interests of shareholders.
She noted that Tesla’s directors had been influenced by Musk’s “superstar appeal” during the negotiation process.
The attorney representing the Tesla shareholder who filed the lawsuit, Richard Tornetta, expressed satisfaction with the ruling, calling it a “good day for the good guys.”
The decision is subject to appeal to the Delaware Supreme Court.
Elon Musk, who owns various companies, including Tesla, X (formerly Twitter), SpaceX, and Neuralink, reacted to the verdict on his platform, X.
He advised against incorporating a company in Delaware and recommended Nevada or Texas.
Musk even conducted a poll among his followers to gauge their opinion on Tesla changing its state of incorporation to Texas, where its physical headquarters are located.
Despite being the CEO and a significant shareholder of Tesla, Musk expressed concerns about the company’s vulnerability to a takeover by “dubious interests” due to its current shareholder structure.
He emphasized a desire for greater control, particularly about Tesla’s investments in artificial intelligence (AI) technology.
Musk stated that unless he has 25% voting control, he would prefer to develop AI and robotics products outside of Tesla.
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