This investigation is opened in connection with the compensation of Elon Musk and other directors of Telsa, Inc. between 2017 and 2020.
Plaintiff and Defendants, jointly file a stipulation of settlement for the defendant directors to give 3 million options back, valued at $735,266,505:
“The Settlement Option Amount consists of (i) $458,649,785 in Returned Options, using
the valuation method for Returned Options set forth in Section 2.3 of this
Stipulation, and (ii) $276,616,720 in Returned Cash and/or Returned Stock,
combined, using the valuation methods for Returned Cash and Returned Stock set
forth in Sections 2.4 and 2.5, respectively, of this Stipulation.”
“Derivatively on behalf of Tesla, Inc. against certain members of the company’s current and former board of directors, namely: Brad Buss, Robyn M. Denholm, Ira Ehrenpreis, Lawrence J. Ellison, Antonio J. Gracias, Stephen t. Jurvetson, Kimbal Musk, James Murdoch, Linda Johnson Rice, Kathleen Wilson-Thompson, and Hiromichi Mizuno and fellow director and
Tesla’s controlling stockholder, Elon Musk.”
According to the complaint, Plaintiff The Police and Fire Retirement System of the City of Detroit, a Tesla, Inc. (TSLA shareholder) brought this action for breach of fiduciary duty and unjust enrichment to put an end to the “looting” of Telsa directors self-compensation.
The complaint alleges that the “Director Defendants have used their positions on the Board to enrich themselves at the Company’s expense” and that “Demonstrably unmoored from independent stockholder checks on their self-compensation, they have granted themselves millions in excessive compensation and are poised to continue this unrelenting avarice into the indefinite future.”
According to the complaint, “in 2017, four directors received compensation with a grant date fair value ranging from $1,933,914 to $4,921,810“, but “saved their most audacious behavior for 2018” with “compensation worth an average grant date value of $8,706,126.” The complaint explains that “that year, Tesla’s Board Chair was the second highest Board chair in the United States.” In 2019, the Board members who did not step down “received compensation with a grant date fair value of, on average, $2,161,063 per director.”
In the complaint, Plaintiff explains that it did not make a demand on Tesla’s Board because “disabling conflicts of interest and self-interest render each Defendant incapable of considering a litigation demand” and that absent recourse to the Court, “Plaintiff has no way to compel the Director Defendants to return the excessive compensation they paid themselves or stop them from overcompensating themselves in the future.”
On 07/14/2023, lead counsel announced a proposed class action settlement.
A securities class action lawsuit is a lawsuit on behalf of investors considered in a similar position, who purchased or sold securities of a company during a certain period and suffered losses because of an alleged wrongdoing. Security is often broadly defined to include bonds, stocks, options, derivatives, and other instruments.
Section 10b of the Securities Exchange Act of 1934 makes it unlawful to “use or employ, in connection with the purchase or sale of any security” a “manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.” 15 U.S.C. § 78j(b). It is therefore forbidden to: employ any device, scheme, or artifice to defraud; make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made not misleading; or engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Generally, to be successful, the plaintiff must plead the following:
We invite you to read this article from the American Bar Association which, although from 2014, provide ample information to explore the world of class actions brought under section 10b of Securities Exchange Act of 1934.
Section 11 of the Securities Act of 1933 provides “an express right of action for damages . . . when a registration statement contains untrue statements of material fact or omissions of material fact.” (Thomas Lee Hazen, Treatise on the Law of Securities Regulation, §7.3 at 581 (4th ed. 2002)). Practically, buyers in an initial public offering (IPO), relying on the registration statement and prospectus, are given the right to file a complaint against the company and other signatories for losses sustained as a result of the deficient registration statement and prospectus.
Generally, at least four elements must be plead for the claim to survive:
A shareholder derivative lawsuit is a lawsuit brought by a shareholder of a company, on behalf of the company, against an insider (director, board of directors, executives) or a third-party to redress wrongs and harms to the company. Simply speaking, this mechanism exists because one cannot expect directors and insiders to sue themselves for harms they have done to the company.
The Private Securities Litigation Reform Act (PSLRA) of 1995 was enacted to tighten requirements for securities class actions to be brought in the United States. One of the mechanism put in place was a 60-day period, following the filing of the initial securities class action, for any shareholder considered in similar position to the one filing the initial class action complaint, to ask to be named lead plaintiff. Practically, any time a securities class action falling under the PSLRA is filed with a court, law firms advertise their willingness to pursue the case and invite other investors similarly situated to contact them.
The lead plaintiff in a securities class action is a shareholder who suffered losses related to the purchase or sale of a company’s security during a certain period of time, that is appointed with its choice of counsel to represent the rest of the similarly situated shareholders. To be appointed lead plaintiff, you need to contact a law firm, have them examine your losses and agree to be represented by them and ask to make a motion with the court to be appointed lead. The court will then look at all the motions from the different shareholders and make its decision based on a certain set of criteria. Your inability to be lead plaintiff shall not prevent you from any potential recovery in the event of a settlement.
A class period is a set period of time during which the purchasers or sellers of a company’s security claim in a class action lawsuit to have suffered losses. Class periods are based on the merits of the case and may evolve with the litigation.
A class action complaint will define the initial class of investors: the class period and the persons included in the class. You should look at the definition of the class to determine whether you are included or not. However, the class definition will evolve with the litigation. Its definition is very likely to change between the initial complaint filed and the possible settlement. Generally speaking, you should rely on the definitions of the class stated in a stipulation of settlement to determine whether or not you will be entitled to any recovery (see below about the opting-out mechanism).
You may. The mechanism is called opting-out of class. A lead plaintiff will agree on the potential recovery ratio in a settlement. You may have an interest in opting-out of a class if you have sustained large losses and believe bringing a separate lawsuit would entitle you to a larger ratio of recovery.
You may be able to bring a claim to arbitration in certain scenarios. We encourage you to contact a law firm of your choice to inquire about such alternative dispute resolution mechanism.