With the Chancellor poised to decide the timing of final briefing in Tornetta v. Musk, we peek at Defendants' attempts to hide the ball, and also wonder whether they have any legal arguments at all.
Wow, David, I am embarrassed, but also appreciative. I've corrected the article and added a note at the end acknowledging my mistake and your assistance.
The way I am reading it, Musk's lawyers are informing the court that Tesla simply will not comply with rescission of the grant. They are Andrew Jacksoning it.
"... as Plaintiff's Fee Petition is premised on the assertion that Musk would not get paid under the 2018 Compensation Plan and the false proposition that that some Tesla shares issued to Musk were returned to Tesla by virtue of this action (which has not happened and will not happen). "
That's very concerning language. I should have highlighted it.
Now, technically, it is correct that no Tesla shares issued to Musk will get returned to Tesla. Rather, the stock options, which have never been exercised, are voided. The shares were reserved in the treasury for the 2018 Grant, but never issued. So, once again, Musk's hardcore litigators step right up to the line, but are coy about whether they've crossed it.
Let me ask you, don't Tesla and Musk have real problems if they cannot get either the Chancellor or the Delaware Supreme Court to reverse the January 30 rescission order? With a final order from a court of competent jurisdiction that the options are rescinded, I don't see how the auditors can avoid a conclusion that Tesla has a massive compensation expense if Musk bulls ahead in defiance of the ruling. Plus, the shareholder litigation would be epic. All this would be unfolding while the growth story is over, profits are shrinking, cash is burning, Optimus is dancing, Dojo is MIA, robotaxis are nowhere in sight, and Musk & his toadies are defending themselves against serious derivative lawsuits about corporate opportunity, insider trading, and Twitter acquisition shenanigans.
I don't think you ARE wrong, except that this wasn't even coy, because this followed "The Court should not entertain the pending request by Plaintiff’s Counsel for an award of attorneys’ fees (and whether or to what extent any benefit was conferred by the litigation) in the face of Ratification, ..."
So the lawyers were claiming that the rescission of the award was voided, but the implication of the "will not happen" is that Tesla won't comply.
Before the Match decision was handed down and before the "ratification" it seemed to me that Musk had more of an argument with the DE SC, but actions since seem to have destroyed any argument that he was not a conflicted controller, and now they are just throwing down the red flag.
As for Tesla the company, this is all just a useless distraction. Car sales will be down YoY. FSD won't be autonomous. The legal mire will slowly turn into quicksand. Seems like Tesla should be striking for shore and designing and building new saleable products.
As we both know, Tesla is now on desperate ground. Musk had to choose between (1) having Tesla succeed as a modestly successful OEM, or (2) continuing to pump the stock with impossible promises. We both know what choice he made, and "new and saleable products" are not consistent with Choice (1), but not Choice (2).
Also, shareholders had to choose between having a responsible CEO run a modestly profitable enterprise at the cost of a massive share price decline, or keeping Musk in charge despite his obvious lying and fraud because they are unwilling to abide the share price hit. (I would say the directors also had this choice, but it's clear the directors have zero agency.) We know what choice the shareholders made. But the levitation in share price they are banking on will eventually succumb to the law of gravity.
It depends on what Alex says. I presume somewhere in this thing there will be a fight over judicial estoppel in a Texas court, and then what the heck? Why not appeal that all the way to the US SC? We ain't seen nuthin' yet.
For the time being, Alex & Elon have their hands full with the SEC.
Also, I think delay works against Elon because I think it's significantly more likely than not that the market cap & performance achievements under the 2018 Grant continue to melt away.
Musk seems to be following a course which rather ensures that! Letting the fundamental business slowly wither makes no sense at all. He clearly has moved on - just wants to get this award and get out the door.
Musk thrives on legal and tactical optionality . He uses his immense resources , brazen ploys and promotional focus on the future to mobilize a shareholder base now heavily composed of passive investors and worshipful fans. Delay keeps balls in the air and obfuscates the illiquidity and risks of his , apparently significantly leveraged, personal financial position. Legal costs that would break a normal litigant are an options premium in these efforts
It is likely Blackstone and Vanguard voted for "ratification" because that was politically expedient towards those retail investors with strong feelings while relying on the Delaware Courts to ultimately do the right thing ( assuming they care).
"Legal and tactical optionality" is a perceptive and useful way to think of Musk's approach to litigation. There is no doubt that the amount of the "options premium" he pays is relatively inconsequential to him but punishing to most of his opponents.
But, in employing this approach, is Musk really some sort of tactical genius? If so, how to explain the many, many ways he strengthens his opponents' cases with the damaging remarks he makes while the cases are pending? Just as one example, in Tornetta, by shooting off his mouth in anger and vindictiveness within hours of the January 30 decision, and announcing that he wanted to reincorporate in Texas, he has actually given litigants a strong argument that the reincorporation itself was wrongful.
I don't think (and I'm not saying you do, either) that he can continue for much longer to obfuscate the risks now facing Tesla thanks to both deteriorating fundamentals, his terrible business decisions, and his reckless impulsiveness.
As for the votes of Blackstone and Vanguard, both of them have badly hurt the passive investors in their various index funds. The hurt will get worse because, unlike active funds, the passive funds have no way of exiting the large Tesla positions except in response to periodic rebalancing based on market cap changes.
I continue to believe the Court of Chancery will not bow to the bullying. But if it does, and if the 2018 Grant is restored, then it's a case of "Be careful what you wish for." As jaberwock has detailed in a brilliant post in his "jaberwock's newsletter", restoration of the options is likely even worse for Tesla shareholders than upholding their rescission.
We may be underestimating financial pressures at the “Musk” level . As far as I know TSLA is his only significant , theoretically liquid, holding . There seems to be a private market for SpaceX shares ; but the capital structure is reputedly fiendishly complex and there may be investor perceptions and even restrictions inhibiting ready SpaceX sales by Musk. A claim to a vast number of “in-the-money” Tesla options , even if these are disputed , may be important for Musk , who we know owes significant amounts on his holdings and who may incur significant tax liabilities (although he may have offsets from operating losses in his other activities ) when he sells Tesla shares.
Yes, Tesla is crucial to his liquidity, which is why the fears of him leaving Tesla if he doesn't get his options are, to my way of thinking, unfounded.
Based on the defendants latest position, does said position put the Delaware firms who were recipients of the Chancellor's 'great comfort' letter on the wrong side of the Chancellor? Rather hard to argue that ignoring the Chancellor's ruling was the plan of the defendants from the beginning. All the elements of this case since the January ruling seem stacked in that direction. Will the Chancellor be saying, "Et tu, Brute" to the Delaware firms?
You are asking the questions many of us are asking.
Were Musk to defy a final court order, I think chaos would ensue. Tax, Accounting, Financial Reporting, NASDAQ, S&P 500... And, a flood of litigation would ensue.
Then, BlackRock & Vanguard can take deep bows for having enabled this.
Wow, David, I am embarrassed, but also appreciative. I've corrected the article and added a note at the end acknowledging my mistake and your assistance.
The way I am reading it, Musk's lawyers are informing the court that Tesla simply will not comply with rescission of the grant. They are Andrew Jacksoning it.
"... as Plaintiff's Fee Petition is premised on the assertion that Musk would not get paid under the 2018 Compensation Plan and the false proposition that that some Tesla shares issued to Musk were returned to Tesla by virtue of this action (which has not happened and will not happen). "
That's very concerning language. I should have highlighted it.
Now, technically, it is correct that no Tesla shares issued to Musk will get returned to Tesla. Rather, the stock options, which have never been exercised, are voided. The shares were reserved in the treasury for the 2018 Grant, but never issued. So, once again, Musk's hardcore litigators step right up to the line, but are coy about whether they've crossed it.
Let me ask you, don't Tesla and Musk have real problems if they cannot get either the Chancellor or the Delaware Supreme Court to reverse the January 30 rescission order? With a final order from a court of competent jurisdiction that the options are rescinded, I don't see how the auditors can avoid a conclusion that Tesla has a massive compensation expense if Musk bulls ahead in defiance of the ruling. Plus, the shareholder litigation would be epic. All this would be unfolding while the growth story is over, profits are shrinking, cash is burning, Optimus is dancing, Dojo is MIA, robotaxis are nowhere in sight, and Musk & his toadies are defending themselves against serious derivative lawsuits about corporate opportunity, insider trading, and Twitter acquisition shenanigans.
Tell me why I'm wrong.
I don't think you ARE wrong, except that this wasn't even coy, because this followed "The Court should not entertain the pending request by Plaintiff’s Counsel for an award of attorneys’ fees (and whether or to what extent any benefit was conferred by the litigation) in the face of Ratification, ..."
So the lawyers were claiming that the rescission of the award was voided, but the implication of the "will not happen" is that Tesla won't comply.
Before the Match decision was handed down and before the "ratification" it seemed to me that Musk had more of an argument with the DE SC, but actions since seem to have destroyed any argument that he was not a conflicted controller, and now they are just throwing down the red flag.
As for Tesla the company, this is all just a useless distraction. Car sales will be down YoY. FSD won't be autonomous. The legal mire will slowly turn into quicksand. Seems like Tesla should be striking for shore and designing and building new saleable products.
As we both know, Tesla is now on desperate ground. Musk had to choose between (1) having Tesla succeed as a modestly successful OEM, or (2) continuing to pump the stock with impossible promises. We both know what choice he made, and "new and saleable products" are not consistent with Choice (1), but not Choice (2).
Also, shareholders had to choose between having a responsible CEO run a modestly profitable enterprise at the cost of a massive share price decline, or keeping Musk in charge despite his obvious lying and fraud because they are unwilling to abide the share price hit. (I would say the directors also had this choice, but it's clear the directors have zero agency.) We know what choice the shareholders made. But the levitation in share price they are banking on will eventually succumb to the law of gravity.
It depends on what Alex says. I presume somewhere in this thing there will be a fight over judicial estoppel in a Texas court, and then what the heck? Why not appeal that all the way to the US SC? We ain't seen nuthin' yet.
Greatest show on Earth.
For the time being, Alex & Elon have their hands full with the SEC.
Also, I think delay works against Elon because I think it's significantly more likely than not that the market cap & performance achievements under the 2018 Grant continue to melt away.
Musk seems to be following a course which rather ensures that! Letting the fundamental business slowly wither makes no sense at all. He clearly has moved on - just wants to get this award and get out the door.
Musk thrives on legal and tactical optionality . He uses his immense resources , brazen ploys and promotional focus on the future to mobilize a shareholder base now heavily composed of passive investors and worshipful fans. Delay keeps balls in the air and obfuscates the illiquidity and risks of his , apparently significantly leveraged, personal financial position. Legal costs that would break a normal litigant are an options premium in these efforts
It is likely Blackstone and Vanguard voted for "ratification" because that was politically expedient towards those retail investors with strong feelings while relying on the Delaware Courts to ultimately do the right thing ( assuming they care).
Terrific comment, thank you.
"Legal and tactical optionality" is a perceptive and useful way to think of Musk's approach to litigation. There is no doubt that the amount of the "options premium" he pays is relatively inconsequential to him but punishing to most of his opponents.
But, in employing this approach, is Musk really some sort of tactical genius? If so, how to explain the many, many ways he strengthens his opponents' cases with the damaging remarks he makes while the cases are pending? Just as one example, in Tornetta, by shooting off his mouth in anger and vindictiveness within hours of the January 30 decision, and announcing that he wanted to reincorporate in Texas, he has actually given litigants a strong argument that the reincorporation itself was wrongful.
I don't think (and I'm not saying you do, either) that he can continue for much longer to obfuscate the risks now facing Tesla thanks to both deteriorating fundamentals, his terrible business decisions, and his reckless impulsiveness.
As for the votes of Blackstone and Vanguard, both of them have badly hurt the passive investors in their various index funds. The hurt will get worse because, unlike active funds, the passive funds have no way of exiting the large Tesla positions except in response to periodic rebalancing based on market cap changes.
I continue to believe the Court of Chancery will not bow to the bullying. But if it does, and if the 2018 Grant is restored, then it's a case of "Be careful what you wish for." As jaberwock has detailed in a brilliant post in his "jaberwock's newsletter", restoration of the options is likely even worse for Tesla shareholders than upholding their rescission.
https://johnd12343.substack.com/p/the-vote-on-elon-musks-bonus-no-winning
We may be underestimating financial pressures at the “Musk” level . As far as I know TSLA is his only significant , theoretically liquid, holding . There seems to be a private market for SpaceX shares ; but the capital structure is reputedly fiendishly complex and there may be investor perceptions and even restrictions inhibiting ready SpaceX sales by Musk. A claim to a vast number of “in-the-money” Tesla options , even if these are disputed , may be important for Musk , who we know owes significant amounts on his holdings and who may incur significant tax liabilities (although he may have offsets from operating losses in his other activities ) when he sells Tesla shares.
Keep up the great work,
Thanks, Paul.
Yes, Tesla is crucial to his liquidity, which is why the fears of him leaving Tesla if he doesn't get his options are, to my way of thinking, unfounded.
Footnote 7: Musk's award is not 50 times larger. It's 500 times.
Based on the defendants latest position, does said position put the Delaware firms who were recipients of the Chancellor's 'great comfort' letter on the wrong side of the Chancellor? Rather hard to argue that ignoring the Chancellor's ruling was the plan of the defendants from the beginning. All the elements of this case since the January ruling seem stacked in that direction. Will the Chancellor be saying, "Et tu, Brute" to the Delaware firms?
Let's wait and watch. The Court of Chancery has undoubted jurisdiction over the case.
The next two weeks will be intensely interesting.
Will Musk encourage the Tesla board, in outright defiance of the law, to recognize his exercise of the options and issue him the shares?
You are asking the questions many of us are asking.
Were Musk to defy a final court order, I think chaos would ensue. Tax, Accounting, Financial Reporting, NASDAQ, S&P 500... And, a flood of litigation would ensue.
Then, BlackRock & Vanguard can take deep bows for having enabled this.
What could the court do to enforce ruling if Tesla simply defies it?
I think yes, and I’m concerned the courts will back down to the political pressure.