Tesla Directors Settle Lawsuit, Will Return $735 Mln To Company


In one of the largest shareholder settlements of its kind, Tesla (TSLA) directors have agreed to return $735 million to the company to resolve claims of grossly overpaid compensation. The settlement comes as a result of a 2020 lawsuit filed by a retirement fund holding Tesla stock, challenging stock options granted to directors starting in June 2017. However, the settlement does not impact Elon Musk’s $56 billion compensation package, which is the subject of a separate ongoing lawsuit.

According to a court filing, the directors, including Larry Ellison, co-founder of Oracle, will return the equivalent value of 3.1 million Tesla stock options. Tesla has not provided any comment on the matter. The directors maintained that they acted in good faith and in the best interests of Tesla stockholders but agreed to settle to eliminate the risk of litigation to themselves and the company.

The directors were accused of awarding themselves excessive compensation through approximately 11 million stock options from 2017 to 2020, allegedly far exceeding the norms for a corporate board. The case was brought by the Police and Fire Retirement System of the City of Detroit, and the settlement funds will benefit Tesla as part of a derivative lawsuit.

This settlement ranks among the largest ever in the Court of Chancery, a significant venue for shareholder litigation. Tesla and Elon Musk have developed a reputation for contesting lawsuits, with Musk successfully defending against defamation, securities law violation, and shareholder coercion allegations in previous trials.

As part of the settlement, the directors have also agreed not to receive any compensation for the years 2021, 2022, and 2023, and the board will revise the process for determining compensation. Tesla had defended against the lawsuit by arguing that the company experienced unparalleled growth, leading to a tenfold increase in stock price. The rise in stock value also elevated the worth of the stock options awarded to directors and Musk.

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