'Abuse of power': Tesla shareholders accuse CEO Elon Musk of rescuing his investment in SolarCity

Tesla CEO Elon Musk has been accused by shareholders of his company of misusing his power to rescue his own investment inSolarCity.

They are questioningwhether ElonMuskcontrols Tesla Inc or does Tesla control ElonMusk?More than $2 billion hinges on that question as a trial kicks off on Monday.

SolarCity, asolar panel-making company, was on the verge ofbankruptcy before Musk rescued it.

Add WION as a Preferred Source

Muskhas defended himself by sayingthat the SolarCity deal has been a huge success for Tesla shareholders, demonstrating the deal was not only fair, but a boon.

The union pension funds and asset managers leading the case wantMuskto repay to Tesla the cost of the $2.6 billion deal and to disgorge the profits on his SolarCity stock. If they win, it would be one of the largest judgments against an individual.

The two-week trial in the Court of Chancery in Wilmington, Delaware, will boil down to whetherMusk, who owned about 22 per centof Tesla at the time of the deal, is that rare controlling stockholder who does not hold a majority stake.

"I think it's going to be very hard for the court to ignore the reality that ElonMuskis ElonMuskand his relationship with Tesla," said Ann Lipton, a professor at Tulane University Law School.

She said the case might present an unusual situation givenMusk's celebrity status, his personal ties to Tesla board members and those board members' financial ties to SolarCity.

"Put it all together, and it might be enough to count as a controlling shareholder," she said.

Also see|Who is winning space tourism race between Bezos, Branson and Musk?

Few executives dominate their company's image as muchMusk, known for taunting regulators, battling naysayers and personally engaging with his 57 million Twitter followers.

"We are highly dependent on the services of ElonMusk, Technoking of Tesla, and our Chief Executive Officer," said Tesla's 2020 annual report.

Plaintiffs allege thatMuskdrove the negotiations and even pushed Tesla's board to raise, not lower, the price for SolarCity.

A higher price benefitedMusk, who was the largest shareholder of SolarCity, with a stake of about 22 per cent, as well as four members of Tesla's board, who directly or indirectly owned SolarCity stock, according to court records.

Board members settled allegations against them last year for $60 million and did not admit to any fault.

Plaintiffs also allege the deal benefited two ofMusk's cousins who founded SolarCity, saving a company that was rapidly running low on cash.

Muskhas said he was "fully recused" from board negotiations and that shareholders voted to approve the deal because it was central to his "Master Plan, Part Deux" that aims to integrate sustainable solar energy with electric self-driving cars.

He has said that what plaintiffs see as evidence of control is little more than strong management.

"Taken to its natural conclusion, virtually all 'hands-on' and 'inspirational' CEOs with minority stock ownership would be deemed controllers,"Musk's lawyers wrote in a court filing.

If Vice-Chancellor Joseph Slights determinesMuskwas a controlling shareholder, it will fall toMuskto prove the SolarCity deal met the high bar of the "entire fairness" standard, which examines process and price, said legal experts.

"If the vice-chancellor thinks this deal was awful and was not effectively negotiated on behalf of the company, he’ll strike it down," said Larry Hamermesh, a professor at Delaware Law School.

(With inputs from agencies)