Photo: (NASA/Aubrey Gemignani)
Elon Musk is in hot water, and it’s not for smoking marijuana on a Joe Rogan podcast or tweeting about privatizing Tesla this time.
Tesla shareholders are filing a lawsuit under accusations that information regarding the Tesla and SolarCity merge was hidden from them. Apparently, Elon Musk did not reveal to Tesla investors that SolarCity was practically insolvent when they agreed to the merge. And this event was not at a cheap cost. As a matter of fact, this was a $2.6 billion combination.
According to investors, SolarCity hid information from their auditors, Ernst & Young, that could have changed the original financial evaluation of the company. More specifically, payments that were due to lenders. As a result, investors believe Tesla has overpaid for SolarCity while choosing not to reveal information that could have altered views of SolarCity’s financial status.
According to Tesla, “These allegations are based on the claims of plaintiff’s lawyers looking for a payday, and are not representative of our shareholders who support our mission and ultimately voted in favor of the acquisition. The accusations made in the plaintiff’s brief are false and misleading, as Tesla and SolarCity published all material information in its proxy and other public filings for all shareholders to consider before deciding on the transaction.” Clearly, these are two very different stories from the investors and Tesla.
There are also some suspicious circumstances surrounding SolarCity and Elon Musk. For one, SolarCity was founded by Elon Musk’s cousins. And on top of that, Musk’s brother, Kimbal Musk, was on the board of both SolarCity and Tesla. So there may have been some immoral nepotism that was in play that fueled the motivation for the merge.
And there are even more odd connections between SolarCity and Tesla. For example, Tesla board member Brad Buss was the SolarCity CFO (Chief Financial Officer) just before the merge.
Also, Musk seems to have used money from SpaceX, another one of his companies, for SolarCity to keep it from going bankrupt. Just how close was SolarCity to bankruptcy? In September 2015, Brad Buss is believed to have revealed to Musk that in order to avoid a bond default that would almost certainly lead to bankruptcy, SolarCity needed to consolidate as much as $300 million, and the company did not look like it would be able to do this independently given that its’ consistent decline in profits. In fact, the projection was a 28% decline in installations for the company by the end of 2016, but this information was never revealed to the investors. And when the banks refused to subsidize the company with these funds? The merge happened.
So there is certainly a lot of shady circumstances that surrounded the consolidation of Tesla and SolarCity. Musk and his Board have consistently claimed innocence while investors claim a conflict of interest that warrants financial reimbursement for them. It will be very interesting to see where this lawsuit goes and what it will do to the multi-billion dollar tech empire that Elon Musk has built, as many of his companies seem to have played some role in this event.
