Connect with us

Published

1 year ago

on

Elon Musk speaks at SolarCity’s Inside Energy Summit in New York.
Rashid Umar Abbasi | Reuters

Tesla CEO Elon Musk is expected in court on Monday, and the stakes are high — if he loses he could have to pay upwards of $2 billion from his considerable personal wealth.

Musk will be the first witness in a trial to defend his role in Tesla’s $2.6 billion acquisition of SolarCity. Shareholders have sued Musk and members of the Tesla board, alleging that the 2016 deal amounted to a SolarCity bailout.

They also allege that it unfairly enriched the Musk family, who were among the largest shareholders, and that Musk and others failed to disclose all pertinent details and breached their fiduciary responsibilities. Musk has insisted he was “fully recused” from negotiations over the deal. 

Last year, the board members named in the suit settled with the Tesla shareholders for $60 million with no admission of wrongdoing. Musk, the second-richest person in the world, was the only defendant who chose to take the fight to court.

There’s no jury to persuade in this matter. His fate will be determined by the Delaware Chancery Court’s judge, Vice-Chancellor Joseph Slights III.

Days in court

Musk has had his share of legal problems beyond SolarCity.

For example, the SEC sued him in 2018 for fraud, with Musk and Tesla settling, paying $20 million each. The charges came after Musk tweeted about taking Tesla private for $420 a share, a move that sent Tesla’s stock price soaring. Musk had to temporarily relinquish his chairman role at Tesla as one of the terms of the settlement.

In a separate case, he emerged victorious after caving expert Vernon Unsworth said Musk had defamed him when the Tesla CEO called him a “pedo guy” on twitter. His attorneys argued that “pedo guy” was heated rhetoric and not meant as statement of fact.

Tesla and Musk are facing many other lawsuits, including one over Musk’s unprecedented CEO compensation package, and a number of federal probes according to the company’s own financial filings.

In the SolarCity case, the judge will have to decide whether Musk was a conflicted controlling shareholder who met the “entire fairness” standard in his handling of the SolarCity acquisition.

In other words, was Musk acting in Tesla shareholders’ best interest? And did Musk tell shareholders everything they deserved to know?

Known as a shareholder derivative action, this kind of lawsuit is filed by investors on behalf of a corporation, rather than the individuals or funds themselves. If the plaintiffs win, proceeds may go to Tesla and not to the stakeholders who brought the suit.

Company connections

According to a filing with the chancery court, Musk owned 22.1% of Tesla common stock at the time of the deal, and 21.9% of SolarCity. SolarCity was a troubled asset that was bleeding cash in the capital-intensive market of residential solar deployment.

Vehicles sit parked outside the Tesla Inc. solar panel factory in Buffalo, New York, U.S., on Wednesday, Dec. 26, 2018.
Andrew Harrer | Bloomberg | Getty Images

Musk’s attorneys are expected to argue that the SolarCity deal hasn’t harmed shareholders at all and that they voted overwhelmingly to approve the acquisition. After all, Tesla shares have skyrocketed from a closing price of $43.92 on June 21, 2016 — when Tesla announced it would bid for SolarCity — to a closing price of $656.95 on July 9, 2021 (Friday) after a five-for-one stock split last year.

The company is also part of the S&P 500 now, and reports profits regularly.

SolarCity was founded and run by Musk’s cousins, Lyndon and Peter Rive, but backed by Musk who served as chairman of the board. Meanwhile, he also was CEO of Tesla, as well as the company’s chairman.

That wasn’t his only potential conflict. SpaceX, Musk’s aerospace venture, had invested $255 million in SolarCity bonds from March 2015 to March 2016. Four members of Tesla’s board directly or indirectly owned SolarCity stock at the time the acquisition was under consideration. And some Tesla board members also held shares in SpaceX and were on its board.

How he pitched it

To Musk and many of his supporters, the acquisition of SolarCity in 2016 represented a natural combination of his companies and a way for Tesla to pursue its environmental mission with a broader array of products. Homeowners would be able to finance and install solar rooftop panels from the same company that provided their electric vehicle, home charging station and backup battery for energy storage.

Tesla had already launched an energy division in late 2015, with a home battery dubbed the Powerwall and other big batteries for use by businesses and utilities.

By June 2016, Musk said Tesla would bid $2.8 billion to buy SolarCity. “I don’t think this creates additional financial risk for Tesla,” he said at that time, and called a merger “blindingly obvious.” But Tesla investors were skeptical, with the stock price plunging more than 10% on the announcement. 

In July 2016, Musk presented his vision of Tesla as an automotive innovator and renewable energy titan in his famous “Master Plan Part Deux.”

As CNBC previously reported, unsealed court documents, including emails between Musk and SolarCity execs, would later reveal that he knew SolarCity was facing a “liquidity crisis” even as Tesla pursued the acquisition.

“Three things need to happen to change investor sentiment: SolarCity solving its liquidity crisis, an LOI with Panasonic to address solar cell production risk, and a joint product demo,” Musk wrote to SolarCity execs in September that year. “Should be able to do all those before the shareholder vote.”

In October 2018, Tesla and SolarCity jointly announced a combined solar roof and battery pack. Musk showed off what looked like a solar panel, miniaturized and sleek enough to be mistaken for high-end roofing materials, at the Hollywood set of Desperate Housewives. 

After the deal

The hype event did help him to turn investor sentiment. In November, the deal was approved in a vote by 85% of shareholders. But after it closed, Tesla’s SolarCity business would falter.

Through the years, the company repeatedly delayed mass manufacturing its Solarglass roof tiles. The ones Musk presented as a production-ready prototype in 2016 were actually a non-functional design prototype.

Walmart sued Tesla after fires broke out on panels the company had installed atop their facilities. A former Tesla Energy employee filed a whistleblower complaint to federal agencies about the fire risks of Tesla’s solar rooftops. And Panasonic exited from the Buffalo plant that Tesla took over, once it was clear Tesla was not going to manufacture its solar roof tiles there.

While the Tesla solar roof tiles have not taken off, the company’s energy storage products are on a tear, as demand for lower-cost electricity from renewable sources picks up worldwide.

In the trial starting Monday in Wilmington, Delaware, Musk will be represented by attorneys with Ross Aronstam & Moritz (David E. Ross, Garrett B. Moritz and Benjamin Z. Grossberg). The trial is expected to run until July 23, 2021, unless the entities seek a settlement before it’s done.

Related Topics:
Continue Reading

Technology

DOJ asks for independent probe into FTX bankruptcy, a likely tactic to gather evidence on alleged fraud

Published

2 days ago

on

December 2, 2022

By

DOJ asks for independent probe into FTX bankruptcy, a likely tactic to gather evidence on alleged fraud

John Ray, chief executive officer of FTX Cryptocurrency Derivatives Exchange, arrives at bankruptcy court in Wilmington, Delaware, US, on Tuesday, Nov. 22, 2022.

Eric Lee | Bloomberg | Getty Images

The Department of Justice has requested that an independent examiner be appointed to review “substantial and serious allegations of fraud, dishonesty” and “incompetence” after the implosion of Sam Bankman-Fried’s crypto empire. It could be one way for the DOJ to gather evidence of alleged fraud.

In a filing in Delaware federal bankruptcy court, Andrew Vara, a U.S. bankruptcy trustee, told the court that the allegations of corporate misconduct and complete failure merited an immediate and speedy examination of the events leading up to FTX’s stunning collapse three weeks ago.

related investing news

Piper Sandler says Coinbase may capitalize on FTX bankruptcy, sees shares more than doubling

CNBC Pro
Piper Sandler says Coinbase may capitalize on FTX bankruptcy, sees shares more than doubling

2 hours ago

Vara said there’s a substantial basis to believe that Bankman-Fried and other managers mismanaged FTX or engaged in fraudulent conduct.

“It seems to me that the DOJ is trying to use the bankruptcy process as a way of getting evidence,” former federal prosecutor Renato Mariotti told CNBC.

“Many times, the Department of Justice and bankruptcy estates in fraud cases work together in compiling potential restitution or other types of actions to make victims whole,” he said. The DOJ “will likely be part of the asset recovery and potentially having a Victims Fund with money going to those that lost money and what the Department of Justice potentially will view as a fraud.”

“It just shows a level of interest and attention that they’re paying to this that should be troubling to Mr. Bankman-Fried.”

Vara said an examination is preferable to an internal investigation because of the wider implications the company’s collapse may have on the crypto industry.

Another legal expert said that there could be other factors at play too, including the extensive political donations that FTX executives were involved in on both sides of the aisle.

There have been “campaign donations on both sides of the aisle from FTX and there have been political overtones and undertones in this case,” said Braden Perry, former senior trial attorney at the Commodities Futures Trading Commission and Kennyhertz Perry partner.

“I think that this is just out of prudence and out of caution to make sure that whatever is happening is done at an independent level,” Perry continued.

It’s not unusual to appoint a bankruptcy examiner. There was one to oversee the crypto bankruptcy process of Celsius Network, for example.

Bankruptcies above a certain size require an examiner. In this case, the U.S. Trustee said that an examiner is mandatory because FTX’s fixed, liquidated and unsecured debts to customers exceed the $5 million threshold.

FTX’s November collapse left creditors reeling over the loss of hundreds of millions of dollars, in some cases, and has rocked the wider crypto world. BlockFi, a crypto lender, filed for bankruptcy protection in New Jersey last week.

Continue Reading

Technology

Tech layoffs send visa holders on frantic search for employment to avoid deportation

Published

2 days ago

on

December 2, 2022

By

Tech layoffs send visa holders on frantic search for employment to avoid deportation

After years of seemingly boundless expansion, the U.S. tech industry has hit a wall. Companies are in cash preservation mode, leading to thousands of job cuts a month and a surge of layoffs in November.

While the sudden loss of a paycheck can be devastating for anyone, especially during the holiday season, the recent wave of reductions is having an outsized impact on skilled workers who are living in the U.S. on temporary visas and are at risk of being sent home if they can’t secure a new job in short order.

Tech companies are among the employers with the most approvals for H-1B visas, which are granted to people in specialty occupations that often require a college degree and extra training. Silicon Valley has for years leaned on temporary visas issued by the government to employ thousands of foreign workers in technical fields such as engineering, biotech and computer science. That’s a big reason tech companies have been outspoken in their defense of immigrants’ rights.

Workers on temporary visas often have 60 to 90 days to find a new gig so they can avoid being deported.

“It’s this amazing talent pool that the U.S. is fortunate to attract, and they’re always living on the edge,” said Sophie Alcorn, an immigration lawyer based in Mountain View, California, who specializes in securing visas for tech workers. “Many of them up are up against this 60-day grace period deadline. They have a chance to find a new job to sponsor them, and if they can’t do that, they have to leave the U.S. So it’s a stressful time for everybody.”

The already grim situation worsened in November, when Meta, Amazon, Twitter, Lyft, Salesforce, HP and DoorDash announced significant cuts to their workforces. More than 50,000 tech workers were let go from their jobs in November, according to data collected by the website Layoffs.fyi.

Amazon gave staffers who were laid off 60 days to search for a new role inside the company, after which they’d be offered severance, according to a former Amazon Web Services employee who lost his job. The person spoke to CNBC on the condition of anonymity.

In fiscal 2021, Amazon had the most approved petitions for H-1B visas, with 6,182, according to a National Foundation for American Policy review of U.S. immigration data. Google, IBM and Microsoft also ranked near the top of the list.

The former AWS employee has been in the country for two years on student and employment visas. He said he was unexpectedly laid off at the beginning of November, just months after joining the company as an engineer. Despite Amazon informing him that he had 60 days to find another position internally, the person said his manager advised him to apply for jobs elsewhere due the company’s pullback in hiring. Amazon said in November it’s pausing hiring for its corporate workforce.

An Amazon spokesperson didn’t provide a comment beyond what CEO Andy Jassy said last month, when he told those affected by the layoffs that the company would help them find new roles.

Companies generally aren’t specifying what percentage of the people being laid off are on visas. A search for “layoffs H1B” on LinkedIn surfaces a stream of posts from workers who recently lost their jobs and are expressing concern about the 60-day unemployment window. Visa holders have been sharing resources on Discord servers, the anonymous professional network Blind and in WhatsApp groups, the former AWS employee said.

It had already been a frenetic few years for foreign workers in the U.S. well before surging inflation and concerns of a recession sparked the latest round of job cuts.

The Trump administration’s hostile posture toward immigration put the H-1B program at risk. As president in 2020, Donald Trump signed an executive order suspending work visas, including those with H-1B status, claiming they hurt employment prospects for Americans. The move drew a strong rebuke from tech executives, who said the program serves as a pipeline for talented individuals and strengthens American companies. President Joe Biden allowed the Trump-era ban to expire last year.

Whatever relief the Biden presidency provided is of limited value to those who are now jobless. An engineer who was recently laid off by gene-sequencing technology company Illumina said he hoped his employer would sponsor his transfer to an H-1B visa. He’s here on a different visa, known as Optional Practical Training (OPT), which allows graduates in science, technology, engineering and mathematics (STEM) to work in the U.S. for up to three years after graduation.

The former Illumina employee, who spoke on condition that he not be named, not only has to find a new job within 90 days from the layoff date, but his OPT visa expires in August. Any company that hires him must be willing to sponsor his visa transfer and pay the related fees. He’s considering going back to school in order to extend his stay in the U.S., but he’s anxious about taking on student loans.

Illumina said in November it was cutting about 5% of its global workforce. A company spokesperson told CNBC that less than 10% of impacted employees were here on H-1B or related visas.

“We are engaging with each employee individually so that they understand the impact to their employment eligibility and options to remain in the U.S.,” the spokesperson said by email. “We are working to review each and every situation to ensure great care for those impacted, and to ensure compliance with immigration law.”

The ex-employee said he had dreams of working for Illumina, planting roots in the U.S. and buying a house. Now, he said, he’s just trying to find a way to stay in the country without going deep into debt. In just a matter of months, it’s “like a night and day difference,” he said.

WATCH: Tech layoffs double from October to November

Continue Reading

Technology

Elon Musk suspends Ye’s Twitter account after swastika post

Published

2 days ago

on

December 2, 2022

By

Elon Musk suspends Ye's Twitter account after swastika post

Ye suspended from Twitter again after antisemitic post

Ye’s Twitter account was suspended again Friday for violating the social media platform’s rules on “incitement to violence,” CEO Elon Musk said.

The rapper, formerly known as Kanye West, appeared to post an image of a swastika, a symbol synonymous with the Nazis, inside a Star of David, a prominent symbol of Judaism.

Musk said he “tried his best” in response to Ye’s tweet, which can no longer be viewed. “Despite that, he again violated our rule against incitement to violence. Account will be suspended.”

Ye’s tweet came after he made antisemetic comments in an interview with the controversial radio host Alex Jones on Thursday. Ye referred to “the Jewish media” and said he saw “good things about Hitler” in an hourlong conversation with the conspiracy theorist.

In October, Twitter locked Ye’s account for an unspecified amount of time following a string of antisemitic remarks which escalated into threatening and hateful comments about Jewish people. He returned to Twitter in November.

Deals off

Elon Musk is the bravest, most creative person on the planet, says Netflix's Reed Hastings

The billionaire Tesla CEO, who has called himself a “free speech absolutist,” is finding the limits of that tested in his early days of owning Twitter.

‘Verified’ service

Musk has attempted to make sweeping changes in his first few days in charge, including gutting a huge swathe of Twitter’s workforce and launching an $8 per month “Verified” service that allows users to buy the coveted blue check mark.

Twitter was forced to pause its subscription service however after users abused it by paying the fee to get a blue check then impersonating celebrities.

Musk said last week that the “Verified” service would be relaunched on Friday with different colored check marks, but there has been no update on whether this is still the case.

Continue Reading

Trending