8 Comments
Apr 15Liked by Lawrence Fossi

Call me old fashioned, but I'd like a legal system based on Kant's categorical imperative over Muskian Machiavellian results first.

When the Tesla saga finally concludes, I hope the Board and Musk's utter lack of accountability to shareholders result in a revival of fiduciary duty jurisprudence for public companies.

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Fossi: It's the lies.

Lipton: It's the liar.

Probably, it's the combination.

Why will the compensation of the lawyers with stock cost Tesla nothing? And if so, what can the company deduct from taxes, if there is no cost?

In any case, stock owners pay by dilution.

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1. It will cost Tesla nothing because Tesla pays nothing.

2. The "fully-diluted" share count will decrease because Elon's in-the-money options are cancelled.

3. But, for purposes of legal fees, the plaintiff attorneys' have asked to be paid in stock -- 11% of the shares that otherwise would be cancelled.

4. Only Elon is diluted. All other shareholders will suddenly own a greater percentage share of the company.

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Excuse me for being obtuse, or obnoxious (with one leading to the other), but

1. Tesla the company was defrauded by its board

2. To right this situation, Tesla shareholders lose 11% of what was rightfully theirs (while Musk loses 100%, agreed)

3. So, all other board members live happily ever after

4. What if a shareholder takes them to court for the enormous litigation cost?

5. And you skipped over the tax question. If Musk and his fellow shareholders are the only losers (one of potential profits, the others in the amount of the litigation cost), and if Tesla even books $2B extra profit – what can the company deduct from it’s tax burden?

In my thinking, if I lose $1,000 on the street, a person finds and returns it, and I pay a $200 finder’s fee: I’m happy to have back $800, but I’m still out $200. But if a thief takes the $1.000 and a PI brings it back for the $200, I’ll certainly try to get it back from the thief (regardless of the criminal implications).

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Apr 16Liked by Lawrence Fossi

I think you are both right. For Jochen, he is saying that if the BOD award had never happened, this 11% payment of the award would never have happened and so shareholders would not be diluted by those shares. What you are saying is that given where shareholders are now…they aren’t losing anything, in fact they are getting 89% of the award dilution back and they are also recouping the prior taxes paid on that 89% reward as an income gain. The 11% was a cost still taken from shareholders at the position they were prior to the award.

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Thanks, Ron. I hadn't looked at it in the light you shine. But I take your point. For Jochen and me, Tornetta is Schrödinger's Cat.

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Thanks for clarifying my thoughts, Ron.

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I don't find your questions obnoxious at all. But I do think you can sharpen your understanding of what happened in Tornetta.

1. Tesla was not "defrauded" by its Board, but the award made by the Board did not pass Delaware's "entire fairness" test.

2. Except for Musk, Tesla shareholders lose nothing. Indeed, because the total number of shares (calculated on a "fully-diluted" basis [which means assuming all in-the-money options will be exercised] will decrease because of the Tornetta decision, the share of Tesla owned by each non-Musk shareholder will *increase*.

3. I'm not sure what you mean about all other Board members living happily ever after. Many of the Board members, to settle their part of the case, had already forfeited some options.

4. No shareholder was harmed. Consequently, no shareholder has any damages. Indeed, all shareholders will own a greater share of the company after a final order is entered than they do right now. The litigation cost comes ENTIRELY out of Musk's options.

5. Again, the "fellow shareholders" are winners, not losers. I have linked to the opinion in both posts I've made about Tornetta. Perhaps you might want to read it? Also, I have no idea what you mean about "potential profits." What Tesla will book is a large amount of credit. Why? Because in years past, Tesla booked some expense for the compensation award to Musk. Now that the compensation award will be unwound, Tesla can remove that cost from its books.

I don't understand your analogy to losing $1,000. I think it arises out of your confusion on Points 1 through 5.

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