Thu, February 1, 2024
By Tom Hals
WILMINGTON, Delaware (Reuters) - Elon Musk suffered one of the biggest legal losses in U.S. history this week when the Tesla CEO was stripped of his $56 billion pay package in a case brought by an unlikely opponent, a former heavy metal drummer.
Richard Tornetta sued Musk in 2018, when the Pennsylvania resident held just nine shares of Tesla. The case eventually made its way to trial in late 2022 and on Tuesday a judge sided with Tornetta, voiding the enormous pay deal for being unfair to him and all his fellow Tesla shareholders.
Tornetta could not be reached for a comment and his attorney declined to comment.
Until Tornetta's case, Musk prevailed in a string of trials accusing him of defamation, of breaching his duty to shareholders and of violating securities laws.
Based on his online presence, Tornetta seems to have more of an interest in creating audio gear for car-customizing enthusiasts than going after corporate excess and malfeasance.
He has posted light-hearted videos about gadgets he has created or mishaps, including describing how he torched his eyebrows.
Tornetta also turned up in videos drumming at the legendary former New York club CBGB with his now-defunct metal band "Dawn of Correction", which described its sound as "a swift kick to the face with a steel-toed work boot."
On social media, fans of Tesla and Musk seemed to find the case a travesty of justice and speculated about Tornetta's intentions and political affiliations, asking how an investor with such miniscule holdings could wield such power.
Delaware corporate case law is full of cases bearing the names of individual investors with tiny shareholdings who wound up shaping America's corporate law.
Many law firms that represent shareholders keep a stable of investors they can work with to bring cases, says Eric Talley, who teaches corporate law at Columbia Law School. They might be pension funds with a broad range of stock holdings but they are also often individuals like Tornetta.
The plaintiff signs paperwork to file the lawsuit and then generally gets out of the way, says Talley. The investors don't pay the law firm, which takes the case on contingency, as the lawyers did in the Musk case.
Tornetta benefits from winning the case the same way other Tesla shareholders benefit: saving the company billions of dollars that a subservient board of directors paid to Musk.
Business groups have long criticized cases brought by individuals as an indication of potentially abusive litigation. Delaware 10 years ago was plagued with lawsuits led by retail investors owning a few shares challenging merger deals. The cases were often quickly resolved with meaningless settlements that always included payments to the attorneys bringing the cases. Delaware judges and lawmakers eventually reined in the practice.
Experts said people like Tornetta are vital for policing boardrooms. Lawmakers and judges have long wanted large investment firms to lead such corporate litigation since they are better equipped to keep an eye on their lawyers' tactics. But experts said fund managers do not want to jeopardize relationships on Wall Street.
So it was up to Tornetta to take on Musk.
"His name is now etched in the annals of corporate law," Talley said. "My students will be reading Tornetta v Musk for the next 10 years."
(Reporting by Tom Hals in Wilmington, Delaware; Editing by Noeleen Walder and David Gregorio)
Elon Musk's $56 billion Tesla pay package has been tossed out by the court
The judge called Musk's compensation an 'unfathomable sum.'
Mariella Moon
·Contributing Reporter
Wed, January 31, 2024
Omar Marques via Getty Images
In 2018, Tesla awarded Elon Musk a $56 billion pay package that helped propel him to the top of world's richest lists. Now, a judge in Delaware has rendered the deal between the company and the CEO to be invalid and called the compensation an "unfathomable sum" that's unfair to shareholders. As initially seen and reported by Chancery Daily on Threads, the court of Chancery in Delaware has released its decision on the lawsuit filed by Richard Tornetta. The Tesla shareholder accused the automaker of breaching its fiduciary duty by approving a package that unjustly enriches its chief executive.
Judge Kathaleen McCormick wrote in the decision that Musk "enjoyed thick ties" with the directors who were in charge of negotiating his pay package on behalf of Tesla, which means there "was no meaningful negotiation over any of the terms of the plan." The judge also talked about how Musk owned 21.9 percent of the automaker when the package was negotiated. That gave him "every incentive to push Tesla to levels of transformative growth," because he stood to gain $10 billion for every $50 billion in market capitalization increase.
"Swept up by the rhetoric of 'all upside,' or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?" the judge wrote in the court document. As The Washington Post notes, she ruled that Tornetta is entitled to a "rescission" and has ordered Tesla and its shareholders to carry out her decision and undo the deal. Musk's camp, however, can still appeal her ruling.
Musk has sold some of his Tesla stocks to help pay for his acquisition of Twitter, now X, from the time his pay package was approved. At the moment, he owns around 13 percent of Tesla, though he recently said that he wants 25 percent control over the company before he's comfortable growing it to be a leader in AI and robotics.
In response to the court's decision, Musk tweeted: "Never incorporate your company in the state of Delaware." He also posted a poll asking followers whether Tesla should change its state of incorporation to Texas, where its physical headquarters are located.
Heavy Metal Drummer Cost Elon Musk $55.8 Billion
Noor Al-Sibai
Thu, February 1, 2024
Hate Breed
Elon Musk will not be $55.8 billion richer anytime soon — and it wouldn't have happened without a ticked off metal band drummer.
As the Wall Street Journal reports, Musk won't be granted all those additional billions from Tesla, per his strangely-negotiated pay package deal, thanks to one Richard Tornetta, a one-time thrash band drummer who also happens to be a shareholder convinced that the CEO should not be making so much money off his back.
A self-described "car guy," Tornetta used to work for a company that made audio parts for automobiles and currently works in marketing, per an archived version of his LinkedIn that the WSJ viewed that paints him as very much the type of person who would buy stock in Tesla.
The more exciting side of his backstory, however, goes back to 2008, when as Newsweek reports, the shareholder's old band Dawn of Correction, whose name seems to be taken from a folk song that was a response to another folk song, titled "Eve of Destruction," released its one and only album, "Dead Hand Control." Not long after, the band's members left the project for greener pastures — which in this case included suing the world's richest man.
Electric Wizard
Ten years after the album dropped, Tornetta sued Tesla, alleging that its board members misled investors at the CEO's behest when deciding to award Musk a whopping $56 billion as compensation. It's been tied up in Delaware courts ever since, with the COVID-19 pandemic and a months-long surgery leave for the judge, Chancellor Kathleen McCormick, putting it off until now.
"Was the richest person in the world overpaid?" the original filing in Delaware Chancery Court reads in its introduction. "The stockholder plaintiff in this derivative lawsuit says so. He claims that Tesla, Inc.’s directors breached their fiduciary duties by awarding Elon Musk a performance-based equity-compensation plan."
In her ruling, Chancellor McCormick agreed that the compensation negotiations and subsequent shareholder vote were "deeply flawed," and that it should therefore be rescinded.
"This would be as though it never happened," Greg Varallo, Tornetta's lawyer, told the WSJ.
Incredibly, as Al Jazeera reports, Tornetta only owned nine shares in Tesla when he sued in 2018, which are worth about $1,700 today. His lawyers, the outlet reported, will be compensated by Tesla — which if nothing else shows that when you go up against giants like Musk, sometimes you can at least get your legal bills paid.
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