Holy Smokes! Elon Musk Just lost about a$ 55 billion pay package. This is a pay package that was approved by the board in 2018 which awarded Elon Musk options to purchased Tesla stock. uh, over uh, a 12 trunch period. Uh, The judge has apparently ruled Elon's uh, pay as executive and that the board did not act in a fiduciary capacity to shareholders.

Uh, Tesla down on this news about 2 and 1/4% Basically, this throws the deal back. Uh to uh, the uh, uh. the board to essentially come up with a new pay package going all the way back to 2018? Absolutely wild. We've got the ruling here.

We're going to go through exactly this. Here it is. post trial opinion. Uh, and so we've got all the parties involved here.

Uh, was the richest person in the world, overpaid The stockholder plaintiff in this D derivative lawsuit says so. And so basically, the claimant the person filing the lawsuit claims that Tesla's board of Directors breach their fiduciary duties by awarding Musk a performance-based equity comp plan. The plan offered Musk the opportunity to secure 12 tranches of options, each representing 1% of Tesla's total shares outstanding as of Jan 21 2018 for a trunch to vest, Tesla's market cap must increase by 50 billion and Tesla must achieve either adjusted an Iata Target adjusted EA Target or a revenue Target in four consecutive fiscal quarters with a $ 55.8 billion max value and 2.6 billion Grant date fair value. That's what you pay taxes on.

Uh, The plan was the largest potential compensation opportunity ever observed in the public markets by multiple orders of magnitude. The judge apparently is writing this 250 times larger uh than basically the median peer Compensation Plan in over 33 times larger than the plan's closest comparison, which was Musk's Prior plan. Wow, they're literally comparing the size to Musk's Prior size. Uh, the post-trial decision enters a judgment for the plaintiff.

There it is: Judgment For the plaintiff, finding the compensation plan is subject to review subject to review Uh under the entire fairness standard and the defendants so Elon Musk bore the burden of proving the Compensation Plan was fair and failed to meet that burden. Stock NOW down 2% although recovering Uh somewhat. Board of Directors decision on how much to pay a company's chief executive is Quint quintessential Uh a quintessential business determination subject to Great judicial difference difference. Rather sorry.

but a Delaware law recognizes unique risks inherent in a corporation's transactions with A with its controlling stockholder. Given those risks under Delaware law, the presumptive standard of review for conflicted controller transactions is entire fairness. So the entire plan basically, it's all everything's based on fairness. is this: Fair To invoke the fairness standard, the plaintiff argues that Mus Compensation Plan was a conflicted controller transaction.

In other words, Uh Elon is uh, you know, holds a large portion of Uh, the rights of Um of ownership to Tesla And and he's you know, there's a conflict of interest. essentially. so the question of a fairness comes into play, and so therefore the plaintiff focuses or forces rather, the question does must control Tesla That's very interesting. Conf: flicted controller transaction.

You I'm going to look that one up really quick just to make sure we have. uh, as we're going live here. as this news is breaking, we're going to go. um, uh, we're going to look at a a conflicted controller transaction.

Okay, here we go. Conflicted typically refers to a situation in which a corporate organizational setting where a transaction occurs involving a controller with significant influence over the company. Yes, the conflict arises when the controller's personal interests or potentially at odds of the best interest in the transaction, the controller might benefit personally, either financially or otherwise, at the expense of the organization. So in other words, was it fair that Elon took so much money, uh, essentially in compensation.

And so that's the big question here. Clearly, the court has found no, it wasn't fair. Delaware Courts have been presented with this question Thrice before when an adroit judge found ways to avoid definitively resolving it. Oh, so other judges have basically, basically, uh, uh, not decided to to go in down this.

Rabbit Hole So to speak. This judge apparently wanted to decision dares to boldly go where no man has gone before. or at least where no Delaware Court has gone before. The collection of features characterizing Musk's relationship with Tesla and its directors gave him enormous influence over Tesla in addition to his 21.9% Equity stake, Musk was the Uh basically Superstar SE CEO who held some of the most Uh who held the most influential corporate positions CEO chair founder and enjoyed thick ties with the directors negotiating on behalf of Tesla The primary consequence of this finding is that the defendants bore the burden to prove at trial that the Compensation Plan was entirely fair.

Delaware Law allows defendants to shift the burden of proof under the entire fairness standard where the transaction was approved by a fully informed vote of the majority of the minority stockholders. Wow, look at that. Delaware allows the defendant to shift the burden of proof under the fairness standard where the transaction was approved by a fully informed vote of the majority of the minority of shareholders. and here Tesla conditioned the compensation plan on a majority of the minority vote.

but the defendants were unable to prove that the Shto holder vote was fully informed because the proxy statement inaccurately described key directors as independent and misleadingly omitted details about the process. So they're basically saying, hey, the Tesla shareholders didn't know what they were getting into. That's that's basically the argument here. Tesla Shareh holders didn't know what they were getting into.

Uh, Therefore, uh, the comp plan was not fair. or at least Musk's team didn't prove so. Uh, that's the argument. Okay, let's see here: the concept of fairness calls for holistic analysis that takes into consideration two basic issues: process and price.

The process leading to the approval of Musk's Compensation Plan was deeply fraw flawed. Musk had extensive ties with the people negotiating on behalf. He had a 15-year relationship with a compensation uh, committee chair, so basically conflicts of interest. They're arguing with everybody involved in determining the plan.

Okay, so let's write that down. Quick summary conflicts with all those involved. Okay, got it. Given the collection of people tasked with negotiating on Tesla's behalf, it's unsurprising that there was no meaningful negotiation.

Ooh, interesting, No meaningful negotiation of any of the terms of the plan, did not view the negotiation as an adversarial process. We're not on different sides of things and we wanted to cooperate with Um. Musk. So they're basically interviewing people at Tesla on the Compensation Plan during this hearing and they're like, hey, you know, sounds like y'all didn't really negotiate this at all.

you kind of just went for it. Musk proposed a great size in structure, and that proposal supplied the terms considered by the compensation committee and the board until Musk unilaterally lowered his ask. Six months later, Musk didn't seem to care so much about other details in this litigation. The defendants touted to concession of certain features 5-year holding period, 12year trunch structure, but the holding period was adopted in part to increase the discount on the publicly disclosed Grant price.

Ooh, discount on the grant price and the 12 trunch structure was reached in an effort to translate Musk's fully diluted share proposal to the board prefer totally outstanding shares. Okay, this is whatever. So basically parts of how the disclosure was made to the consumers were not entirely clear. so the judge is just basically finding holes in this process proc so far, so make this very clear or a little bit more clear.

Honestly, like Musk's option thing has always sounded very convoluted to me. and I think that's what the judge is doing here. Judge is poking holes in the option structure uh, discount and negotiation and therefore basically claiming it not fair or transparent, suggesting not fair or transparent. There we go.

Fendants also point to the duration of the process uh 10 meetings. Thorough and extensive defendant statistics, however, suggest the lack of substantive work. Most of the work of the Compensation Plan occurred during small segments of the nine months. basically not enough negotiation.

this was just whatever, blah blah blah uh. The defendant offered Musk the opportunity to increase his test ownership by about 6% if and only if he increased the Tesla market cap to 650 billion while also hitting operational. Milestones According to the defendants, the deal was 6% for 600 billion of growth at the high level. 600 billion for or 6% for 6 billion has a lot of appeal, but that appeal quickly.

Fades when one remembers that Musk owned 21% of Tesla when the board approved his comp plan. Uh, so basically it's like it was. The argument is, oh, it was sold as he's just getting 6% for 600 billion. but the judge is like wait wa wait, he's getting six more per for 600 billion, he already owns 21.9% Interesting.

Okay, interesting. Musk had no intention of leaving. Tesla Anyway, Okay, the ownership State gave him every incentive to push Tesla to levels of transformative growth. Musk stood to gain over 10 billion for every 50 billion in market cap.

Wow, yeah, look at that. 10 billion for every 50 bill in market cap. Musk had no intention of leaving Tesla made that clear. Moreover, the comp plan was not conditioned upon Musk devoting any set of time because the board never proposed such a term.

Wonder if X comes up in here at all like Twitter Uh. Was the plan even necessary for Tesla to retain Musk to achieve its goal? In other words, would it would this work have happened irrespective of the comp plan? Uh. Ambitious and difficult to achieve. but they failed to defend that point point.

No effort to explain the rationale between 1% per trunch. Uh, this is why stock comp plants are always sussy as opposed to some lesser proportion of increased value. None of the arguments add up to a fair price. In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way he saw fit.

process arrived at an unfair price. Uh, plaintiff asked the court to rece Musk's comp plan. Wow. The plaintiff's lead argument is that the court must resend the Compensation Plan du to disclosure deficiencies because the plan was conditioned upon stockholder approval.

The argument, although elegant in its Simplicity is overly rigid and wrong. Okay, the plaintiff offers no legal Authority for why a recision must automatically follow. Generally, a court Equity Uh enjoys broad discretion fashioning remedies. Okay, fine.

Although recision does not automatically result from the disclosure deficiency, it nevertheless becomes unavailable. Remedy: The Delaware Supreme Court has referred to the prision as preferable remedy for fiduciary breaches. This is very interesting. Uh, let me see here one sec.

Let's see here. Okay, there we go. Okay, sorry, keep going. All right.

Uh. preferred remedy is best one the tit. the plaintiff is entitled to recision. Okay, they are basically giving the recision 1700.

The trial took place over 5 days. 1,700 exhibits live testimony from expert Witnesses blah blah blah blah Visionary Leader: This goes back into the history. Talks about the master plan of the Roadster Master plan was bold trying to get some more. Uh I Want to see more judicial commentary here? I Don't need so much of the backdrop master plan part.

do French for two uh the bets on the model 3 Fine SpaceX Boring company must divided most of it time. His time between SpaceX and Tesla in June of 2017 increased his time spent there. I Mean this. This goes down into how much time he spent there as well colonizing Mars Talk is in here 29.

We go all the way back to each of the grants. Mind you, this is like 200 pages long. Okay, so I'm I'm going to skim some of this I want to get to a little bit more? Let's let's go a little bit deeper in here and let me quickly see if I can get to like more on the decision. The hindsight defense ambitious.

Milestones Okay, here we go. This is where the judge basically tears into the different arguments Fair dealing negotiation. This is what I want to show I Also wonder if Twitter's in here at all? so we're probably going to get to yeah, the fairness standard that's around 104, so we'll probably be at here is about page 115, but I quickly wanted. Just see if Twitter is mentioned in here.

so do a quick oh yeah, look at that. uh oh, this is quoting Twitter Musk regularly uses Tesla for resources to adjust projects at other companies. For example, after Musk acquired Twitter, he asked approximately 50 Engineers Tesla Engineers to volunteer to help him evaluate Twitter's engineering team. No one at the board challenged the decision.

uh, I don't know who this Murdoch is. Similarly, in 2020, Musk directed Tesla's management to send Tesla's smartest micro grid designer to SpaceX Oh, they're kind of trying to see like show how uh you know Elon is is potentially utilizing Tesla in more ways than just stock to help his other companies. And that basically how the grant didn't resolve Elon's time commitment whether must should commit a level of time to Tesla was a planned a topic of discussion for September 8th during the call. However, none of the participants raised the issue no Benchmark analysis.

So basically comparing so I mean some could argue there is no comparison for Tesla But then again, there are other companies that have hundreds of billions of dollars worth a M market cap, right? Uh, board must consider how much to offer, blah blah blah. this goes back into again reiterating the negotiation. Let's see what else they have about Twitter in here. Then came Twitter Oh, there's a whole.

this gets juicy. There's literally a whole sector that says uh, uh Then came Twitter must subsequently wanted to terminate it. The amount of time Musk spent on the Twitter acquisition was a concern at Tesla Gosh man, him buying X was just an oopsy doopsy for probably to some regard uh Tesla and um, and now his stock comp plan. but this just keeps coming back to haunt him.

He's got to be rolling his eyes over how many freaking times X comes up I Feel bad for him because it just it's got to be exhausting hearing the same crap over and over again. Uh okay, Musk ultimately acquire a Twitter named himself Chief Chief Twit No one on the board told Tesla not to do this or or told Elon not to do this. In the weeks prior to trial, Musk spent the line share of his time at Twitter Wow. Subnote 508 So there must be an exhibit 508 on that.

That would be very interesting to see the plaintiff. Richard Toretta filed his complaint in 2018 breach of Fiduciary Duty Yada y y I Want to see more? X Commentary: No, that's that's it for X But that brings us to about page 97. So the time he spent was also a big deal again. I Mean the board's just going to have to basically come up with a new comp plan and you know the concern is is it going be larger or smaller than than what it previously was I Me given that this one got thrown out I Imagine it might be somewhat challenging to uh, get a larger package, right? Never incorporate your company in the state of Delaware Elon Musk Just tweeted uh rip Meanwhile, he's also live on Diablo right now.

No, that's somebody else Oh oh okay. okay, he's retweeting somebody else Live on Diablo Okay, interesting. So yeah, 3 minutes ago, never incorporate your company in Delaware says Elon Musk Plaintiff claims that awarding the grant constituted a breach of Duty Fine. So again, if you're just now joining Elon's entire 2018 stock comp plan which is 12 tranches basically 6% of the company for 600 billion in market cap has been voided entirely.

so the board's going to have to come up with something new. What do we have in this footnote here? Talk about Uh Elon Owned 22% at the time and this would have taken him up to 26% But remember, his stock has gone down because he sold a bunch to buy Twitter H Interesting. Dave Okay, Delaware Courts have confronted the precise issue in the prior lawsuit challenging Tesla's 2016 acquisition of Solar City when Musk was Solar City's largest shareholder and board chair. Uh, okay.

the question of whether Musk controls Tesla As proven evasive, it is good time as any to run it to the ground what? And so, once more, onto the breach. dear friends. Once more, the analysis. Begins By discussing Musk stock ownership.

Okay, all right so this is all the legal analysis we're going to fast forward a little bit on this. It's basically how much control he has. Musk's 21.9% block gives him a sizable leg up for shareholder votes. Block gives him great influence in the boardroom, undoubtedly contributes to his clout and sway boardroom.

Supremacy Musk Wheels Considerable power in the boardroom. Duh, We know this. Elon Musk are intertwined fine. This is all going to the fairness and conflicts of interest.

basically arguing there are too many conflicts for this to potentially be fair. CEO Stardom is relevant to the controller status. Because the belief in the CEO's singular importance shifts the balance of power between management right in terms of negotiating. Basically, if you're deemed a superstar CEO Uh, you've got too much power and the relationship with the board.

Okay, we've already gone through that. You know, whether it's his brother or otherwise, here's a Uh Hines lawsuit. A standard Director compensation alone cannot create a reasonable basis to doubt a director's impartiality. Fine, Okay, these are just some other cases.

Process: Okay, we saw what was mentioned about X There was no negotiation over the the size of the grant. We've already heard them complain about that in their pre summary. This is getting into more details basically. Conclusion: Judgment is entered into the plaintiff sharehold, uh, judgment or plaintiff's favor.

The parties are to confirm on the form of the final order and implementing the decision. Uh, that means Elon's going to have to pay fees for the other guy, which those are going to be expensive now. presumably there'll be an appeal so this will keep going for a while. Uh, uh, let's see here.

I'm try to get some more detail from. Suits We saw Elon's tweet that's his latest never incorporate there. Looking for a little bit more on Tesla Yeah, Again, to be very clear, Elon's going to essentially have to negotiate a new, transparent and quote unquote Fair Compensation Plan This uh shareholder apparently also allegedly only owed uh, maybe up to a dozen Tesla shares the socks not moving horribly much I think because there's a horrible amount of uncertainty about what this what this actually means. Thank you for mentioning Gary Black Tweeted: Let's see what Gary thinks I mean Again, it's all going to become a negotiation again here.

Uh. Comp Plan: Decidedly, bull goes where. No M has gone before. Yeah, we already read that part.

Okay, primary concern is the defendant board. the burden of proving the Compensation Plan was entirely Fair We already read that now. What? Tesla can either appeal the decision yes, we know that or come up with an alternate to the cop plan. Either way, uncertainty continues.

Correct. Yeah, Okay, well we we already said said that. So okay. Interesting.

Very interesting. Yeah, Okay, so my take on this. Um, look here. here's the thing it's not going to get I Don't think it's going to get better for Elon right? Like it can only get worse.

so that's challenging for Elon. So my thinking is it. This is a loss for Elon That's what this is. So let's write this down.

Look, let let's like logic this out. Okay, so logic this out. How how can you go up? You can't right? So what are the paths? One new plan? More shares. Okay, wait a minute.

How would that be fair, right? So how is that fair? Uh, it. It probably wouldn't be. and he'd be right back in court, right? So option number one is probably not going to work because he'll just end up right back in court. Because obviously, if 55 bill is not fair, then then 55 Bill plus is also unfair.

Like that's obvious, right? I I think I I'm pretty sure we can all agree that that is not going to work. Okay, Option number two Elon gets nothing. Okay, Well, that's also unfair, right? That's also unfair so that won't happen. So the reality is something in between is going to happen.

So reality, something, uh, something. eventually, uh, something. eventually. How should I say this? Uh, will get pasted and essentially, well, let's put it this way: something less than 55 billion will go through.

something lower than 55 bill will go through. Okay, so could he give up his 12th trunch? Could he give up the 12th trunch? Yes, he could give up the 12th chch. That would be less than 55 billion, right? Uh, Could he take? Let's just say let's say uh, 40 Bill Yes. And then that would mean uh, that would likely mean basically giving shares back to Tesla which is kind of like a buyback.

Okay, uh, so that's interesting. Okay, so anything less than 55 unless you just shave off the 12th. Well, if you shave off the 12th, you kill that dilutive effect, right? So so shaving off the 12th is like a buyback as well, because you UND dilute uh, the sock by some amount. But what it does, however, it could cause uncertainty around Elon's Behavior I Think that's probably more.

The issue is, you know what if he's like uh, F you I'm gone right like that's an argument? maybe? uh, although that'd be pretty childish and silly. So I think like, what? what would deem what would potentially be reasonable? Potentially reasonable. Okay, so you spent half your time at Tesla and half at Twitter Uh, and SpaceX right? So do you Then go and say so. You know 27.5 is reasonable.

Okay, well watch this. Okay, this gets kooky crazy. You ready for this? That means 27.5 bill has to be basically, well. 27.5 Bill minus the last tranch minus tranch 12 has to be repaid somehow I don't know how has to be repaid to Tesla Okay, well one way you could do that if he doesn't have the cash is just take away the ownership percentage.

Okay, well that goes in the opposite direction of what Elon wants. But it's possible one way to do that without cash outlay is strip Elon of additional control which goes in the opposite direction goes in the opposite direction. Or maybe I don't know if you can do this. or maybe he loses the economics on his shares but keeps voting rights I I Don't know.

Again, that creates a dual Clash of shares. That creates some potential problems. But the bottom line here is this: this: Burns Uh Elon Musk Hardcore. That's that's what this does.

How does this: affect uh, the shareholder. For the shareholder, it should be anti-dilutive Uh, and but it. But it does reduce but reduces Elon's control. So if you want Elon to have more control, he hereby loses some more control.

not losses. There we go. So basically the whole thing just probably took 20 billies out of Elon's pocket. Okay, but what else do we know about 20 billion? We know that Elon sold about 24 billion in 2022 and the stock tanked right? Well hereby.

uh, Tesla Shareholders probably got back 24 billion Just saying like from from the POV as a shareholder. this is good. Okay, unless okay, this is the problem. I'm going to put good as risk.

Okay, okay, good. So what's the Asis risk? Elon loses it mentally just saying like he does something rash right AKA he does something rash. uh, which would be bad. So yeah, as usual, it sort of comes back to Elon here.

Uh, and and and what he would end up how Elon would end up reacting is the bottom line of this. Again, we could read the the whole cookie dookie 200 something Pages as we have been doing, but frankly, we've read enough. We know what's going on here. We know that the judge is arguing Elon Musk has spent too much time at Twitter He spent too much time at SpaceX he's not fully committed to Tesla is the argument the judge is making that potentially uh, Elon would have stay a Tesla irrespective of getting an extra 16% in control.

And so now the question comes down to what's going to happen. Well, what's going to happen is the board's going well. There'll probably be an appeal, you know. So path forward.

Let's just write down some paths forward here. Okay, so paths so appeal or new comp plan, new plan and probably an appeal will end up just going to new plan anyway. So let's just cut to the chase. He's going to have to get a new plan.

Okay, what's the new plan going to look like? Well, it is going to be less than prior. like I think we can almost guarantee that who loses that Elon loses that, not shareholders. So uh, the risk is Elon goes off the deep end. So again, good for stock owner unless Elon jumps, you know, off the deep end.

Whatever. So so that's that's what you got here. and now I'm going to look at what what some other folks are saying. Let's see if Elon is saying anything else.

I can get anything else here on Tesla Tesla is down 3% Right now it's down at 185 so all the gains over the last few days poofy dupies. Uh okay, so it's just again, uncertainty, right? No more tweets from Elon We saw some summaries here from folks I don't see any. Let me see if I can get some MSM talk on this. Musk yeah Kathleen McCormack Cited with an investor that there was a lack of proper disclosure.

blahy blue, blah blah uh judges decision to invalidate the pay uh. Following his loss about the funding secur tweet and having the SEC babysitter, it remains unclear whether Elon will will appeal. Okay, what else somebody here writes appeal to expose the corruption of the Delaware Court I mean look I like Elon but I like I I Don't know that we could say the judge is corrupt because the judge made a ruling. You know, just because the ruling doesn't go in your favor.

Uh, you could hold another shareholder vote. bro. who's going to vote for it? Lose? Not Lo did I write loose? I I don't Where did I write loose? Anyway, it doesn't matter. Uh, you know what I mean So like if you vote, let's write that down.

uh new vote. Doubtful shareholders would approve the same. uh plan with uh, that's higher with uh, the three-year stock performance uh, performance Tesla has had. Um, there we go.

So I don't think a new vote at higher helps at all. So yeah, stock's down 3% Still still hunting for just some other commentary. There's not that much good commentary on this yet. frankly.

uh, but yeah, this is um, Elon loses here. The judge basically ruled against Elon that's what you had and so this is a slap to Elon not Tesla shareholders or Tesla's a company. Let see what else let's see here. Elon Loses Yes, Yes! Couldn't this feed into Musk's plan to have more control over Tesla Wouldn't Musk now have a choice between more cash and more control? No, because the Uh, there are no two classes of shares.

There's just one class of shares. So if you only have one class of shares, like voting equals control, right? So voting equals economics as well, you don't have two types. H Let's see here. this was a 2018 lawsuit.

The judge needed an extra day to sell their shares. Oh, somebody says the judge is communist. Yikes. just drop more I'm getting B Bonus cached nice Elon Cells quits and starts a new EV car company.

Well I highly doubt that. Uh yeah, time to go public with X I Did hear they got a Morgan or um valuation right up so he actually went up about 11% The judge. Okay, some people want to know if the judge is a Democrat Well so this is uh the judge's name is Kathleen SJ McCormick So born 79 career Philosophy degree from Harvard and received her JD from Notre Dame Notam the judge nominated or sorry the governor governor John Carney is a member of the democratic party and appointed her to the Delaware Court of the chancell. So a Democratic governor appointed her.

Yeah, let's write that down. Democratic Uh Governor appointed judge that just ruled against Musk. I mean I Think it is pretty clearly a targeted hit on uh on Musk. It's not this.

None of this is. uh, none of this really. I think affects the shareholder I mean I know the stock's down 3% right now, so that affects the shareholder, but again, the long term this is this should be transferring money from the shareholder to uh, sorry from Musk to the shareholder. That's really what what this should end up being.

Okay, let's do a summary. So for everybody who just joined, we could summarize this. Okay, all right, probably can do like an 8 minute summary on this. I think I can get that done.

Uh, let's try who's ready for THM All right, test that works. Okay, here we go well. a democratic judge just told Elon Musk his $55 billion paycheck is worthless. Yeah, that's essentially exactly what just happened.

Elon Musk with a board that he had close relations with at least according to the judge, had a 21 approximately percent ownership in Tesla at the time that he was granted options to control an extra 6% of Tesla if he grew Tesla's market cap by $600 billion. The arrangement was nicknamed 6% for $600 billion and the argument was hey, the stock plan was approved by the majority of the shareholders, not including Musk, the majority of the minority that's known as well. The judge decided hey, was the board actually impartial in balancing their favoritism for Elon Musk with balancing their fiduciary obligation to sharehold holders. Did the board make the right decision and evaluating whether or not the board made the right decision, The judge had to decide how much time does Elon Musk spend at Tesla Oh interesting.

He's spending most of his time at Twitter before the trial. Oh interesting. He's spending about half of his time at SpaceX and half of his time at Tesla Before that, Hm, did the board negotiate any time commitments with Elon Musk Hm. These are some of the com that the judge made in their ruling against Elon Musk ultimately arguing that the worlds in their quote richest person in the world although I think Lvmh's owner just took that Uh title.

But anyway, well, probably certainly after today's ruling. But anyway, was the world's richest person overpaid again. Elon Musk was offered 12 tranches TW for Uh and and then ultimately that would have added up to Uh an additional 6% in ownership for Tesla. And ultimately, the judge ruled that this was not a fair Compensation Plan given that it was 33 times larger than the plan's closest comparison, 250 times larger than any similar comparison plan.

The judge was appointed, the judge whose name is Kathleen McCormack also going by Kathleen St Jude McCormack born 1979, an American lawyer sitting on the Delaware Court of Chancery appointed by a Democratic governor in 2018. Governor John Carney McCormack The judge went to Harvard University for her ba and got her JD from Notre Dame decided that a review of the fairness of the plan fail to meet the burdens required and that the entire plan is essentially rescinded because Musk had too much control over Tesla for his stock comp plan to be considered Fair and therefore the entire plan is trashed. So now the question is, and I'll show some more highlights here. But now the question is what happens now Elon Musk has already responded with a tweet saying basically never incorporate your business in Delaware which is a place most corporations go to incorporate.

He quotes, uh, well he tweets I quote never incorporate your company in the state of Delaware Very verbose here. But anyway, the question now is what ends up happening. Well, in my opinion, ownership of Elon has to be transfer or by Elon in Tesla has to be transferred to shareholders. Which means less dilution for shareholders.

That should be good for shareholders. However, it's probably going to be seen as bad since people don't know what Elon's going to go do next. So we wrote down some options here. Will a new stock comp plan be selected? Probably Probably.

Yes. Will that stock comp plan be greater than what the old one was? Probably not. Given that the old one was deemed unfair at 55 bill, it's probably going to be less than that. Option Number two is Elon gets nothing, but that would probably also be unfair.

So the reality is Elon will probably have to negotiate with the board of directors and document this negotiation. Some kind of stock Compensation Plan that is between 0 and $55 billion. This is basically a democratic judge say you deserve less pay and the shareholders deserve more of that ownership. Okay, fine.

so half if let's say you go with a number in the middle is about 27.5 billion. Could that be deemed reasonable? Maybe. But that does mean Elon Musk Unless he wants to buy back the shares, it does mean Elon Musk's ownership in Tesla would go down. Elon Musk has recently complained that he actually wanted his voting rights in Tesla to go up to about 25% Well, now they're going down.

They're going in the opposite direction. So maybe we're going from 13 to 177% with options down to maybe 7 to 11% with options. So Elon Musk's ownership might be a lot closer to 10% after this is all said and done. Plus, whatever kind of new plan could occur.

Uh, now that would mean shareholders would essentially have greater control control over Tesla than Elon Musk There is no dual class of voting, so you can't really solve the problem by saying okay, Elon we'll give you less pay, but you keep control I Don't know if that can exist. Not even Elon thinks that can exist Elon has made it clear in his earnings call that he's not looking for more economics. In other words, more pay. although that could just be PR given that that trial was going on at this time and instead he just wants to keep voting ownership.

Well, now the opposite is happen happening. So the question is, what can happen? Well, there are a few paths. Number one, you can appeal. probably won't go anywhere, but you can appeal.

Maybe they'll appeal to Kick the Can out the road. Number two: you come up with a new plan and that's any kind of new plan is just going to take money from Elon and give it to anyone holding Tesla shares. That's basically what this is. Money goes from Elon's pocket to Tesla shareholders.

That's how it works. However, why is the stock going down? Well, the Stock's probably going to go down on this news because as I wrote here from the POV as a shareholder, this is good asterisk because what if Elon loses it? In other words, he does something rash. like. Now I'm going to take my Ai and take it away from Tesla.

We're going to take Optimus away from Tesla. Well, then he'll get sued for that, but he might do it. Oh, we're going to take FSD away from Tesla. Well, he'll get sued for that, but he might do it.

Oh, we're going to develop less AI at Tesla he'll get sued for that, but he might do it. The point is, nobody knows. and what does the stock market hate my friends. It is simple we talk about in the Stocks and Psychology of Money course and the gold Courses linked down below with a coupon code expiring tomorrow January 31st at midnight.

Email us at staff at Meetkevin.com for coupon codes. sorry I had to I had to throw one in there. Um, stocks hate uncertainty Elon Musk and Tesla are probably two of the most uncertain entities that exist. There is a lot of volatility that exists in my opinion and I'm sorry for Elon but this is good for Tesla shareholders and no stop this nonsense folks.

Tesla does not have 29 billion in free cash available I'm really honestly exhausted by hearing this. People Do Not Read financial statements. That's how I know you're not a course member because if you were a course member, you would have already read these financial statements. It's okay.

Whatever. I'll do it for you. Okay, I'll do it for you. It's very simple my friends.

You go to the financial statements. Okay, you go to, uh, our actual financials and when we go to our financials, what we're going to look for is we're going to look for the balance sheet and then over here you're going to go. But Kevin We've got about $28 billion in cash and short-term Investments Correct. But what do you think that money gets used for? Well those that money is offset.

Sorry, there we go. That off that money is offset by $14 billion in bills. not only $14 billion in accounts payable, but acred liabilities of nine. So we've got 14.4 billion to pay.

We've got uh, nine in, uh, in in acrude liabilities. We've got 14.4 in payables. So we've actually got $23.4 billion in bills. We've got debt that's due of $2.3 billion in this year.

That's $25.7 billion. Okay, then we've got long-term debts of $8.1 billion. So if you think about it, there's actually more debt at Tesla than there is cash. Now, the good news is Tesla is free cash flow Positive.

Okay, so what you could do is you could calculate the free cash at Tesla by taking $29 billion of cash, minus out the payables and current liabilities. I'm not even minusing out deferred revenue. Okay, that brings you to about $3.3 billion of free cash. Okay, cash we don't actually need.

And now you could add about $1 billion of free cash flow per quarter. Yes, you could do that. Sure, Tesla's got three to four billion dolls of cash sitting around great, but is that 29? Bill No, Sorry. Like anybody who tweets that just doesn't understand, but whatever it's it's okay.

It's okay. Again, their cash free cash flow is growing, so the amount of free cash they have is going going up. But if they paid all the bills that they owe right now, they'd only have like $3 billion left, so just don't work that way. It's okay.

whatever. So uh, but anyway. Okay, so um, let's look at some quotes. Some summary quotes from the actual uh legal opinion so inaccurately describing key directors as independent is considered misleading and omitted details about the process.

This is in the voting, so the judge is arguing that the voting is not fair. Uh, no meaningful negotiation over any terms of the plan. That was another slam from the judge. Increased the discount on the publicly disclosed Grant price.

So in other words, the options pricing was a little convoluted at a high level. 6% for 6 billion has a lot of appeal. However, Elon already had 21.9% so Elon stood to gain 10 billion for every 50 billion in market cap. Was the plan even necessary to retain? Elon Musk That's a question.

Made no effort to give a reasonable explanation for the 1% plan. Trial took place over 5 days. The plaintiff is entitled to recision basically a cancellation of the stockhom plan. Here we go.

Talking about Musk divided his time between SpaceX and Tesla. He increased his amount of time at Tesla at the end of 2017. But then you balance that with uh, how much time Elon spent at Twitter. So the judge is really trying to hammer him and in as many places as possible here.

Uh to to Really balance out this argument that uh, see, there was no negotiation over the size of the grant. Here's another one where we have whether Musk should commit any level of time to Tesla didn't come up. None of the participants raised the issue. So a lot of Slams on uh, on on Elon here and therefore the case ends with the judgment is entered into the plaintiff's favor.

Tesla Shares are almost down 4% Remember, we do have a Uh A level. we have a Um support at about 175 to 178. So very interesting. Elon probably knew this ruling was coming.

that's why he brought up voting rights I Agree with you I think Elon probably did know that this was coming. So very interesting. Very, very very very interesting. Anyway, so that's your summary Again, Yes, it is true Democratic Judge rules against Elon That is true.

We know that that is well, at least judge appointed by a Democratic governor uh who went to Harvard and Notre Dame uh ruled against Elon Yes, that is true and is this probably a long-term benefit to Tesla shareholders? Yes, because I actually have a strong belief that Elon is not going to go off the deep end over this. However, people will still price in that risk and that's why I think the share price is down. Keep in mind, most of this liquidity here is, uh, retail selling. Probably not understanding really what's going on.

and so who knows the stock could go up more or down more tomorrow. Nobody knows. It depends how institutions want to react tomorrow. So anyway, there you have it.

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