WILMINGTON, Del. – Elon Musk has taken over Detroit’s automakers, short sellers, and securities regulator. This week, Tesla’s chief executive is set to go to court against an unlikely nemesis – a thrash metal drummer who hopes to deprive Musk of $56 billion.
The trial will pit the world’s richest man against one of the electric carmaker’s tiniest investors, Richard Tornetta, who held just nine stocks when he sued in 2018.
Tornetta sued Musk and the Tesla board on behalf of the company in what is known as the shareholder derivatives lawsuit. If successful, Musk’s 2018 stock subsidy package will be canceled, benefiting Tesla. Tornetta does not seek damage for herself.
Historically, lawsuits brought by investors with economic stakes are virtually meaningless in a lawsuit that has been criticized by business groups as “annoying lawsuits.” Such lawsuits often end quickly with a non-monetary settlement and a payment to the attorney representing the plaintiff.
“This case seems different,” said Jessica Erickson, a professor at the University of Richmond School of Law who specializes in shareholder litigation.
Tornetta’s case passed a motion of dismissal in 2019 and is heading for a week-long trial that begins Monday in Wilmington, Delaware that will feature direct testimony from Musk, who bought Twitter last month. up front for $44 billion.
The pay package has been widely criticized, and California’s teacher retirement system known as CalSTRS was among investors who voted against it.
Legal experts say such large shareholders are unlikely to sue because it could cost Musk and cut off access to management.
CalSTRS declined to comment.
It’s unclear why Tornetta brought up the case. He did not respond to a request for comment, and his attorney declined to comment.
Tornetta’s company created after-sales Audio equipment for car customization enthusiasts. He posts soothing videos online with his company’s cofounders about their benefits or risks, including Tornetta describing how he burned his eyebrows.
Tornetta also appeared in drumming videos at the legendary former CBGB club in New York with his now-defunct metal band “Dawn of Correction”, describing its sound as “a hit”. quick kick in the face with a steel-toed work boot.”
Share price increased 10 times
Tornetta’s lawsuit alleges that Musk gave the terms of a payment package to a board of directors to the billionaire and claims that it was then put to a vote for shareholders, who were lying about the difficulty of achieving certain goals.
The controversial payment package allows Musk to buy 1% of Tesla shares at a deep discount each time his financial and performance goals escalate; otherwise Musk gets nothing. Tesla hit 11 of its 12 goals as its value skyrocketed shortly to more than $1 trillion from $50 billion, according to court documents.
Musk and the directors argue in the court filing that the package kept Musk focused on Tesla during a difficult time and led to a 10-fold increase in the stock price.
Attorneys dealing with cases like Tornetta’s are not paid by the plaintiffs. If the case is successful, they will ask the judge to order the defendant to pay them fees, which can run into the millions of dollars. It’s not clear how much law firms might seek if Tornetta prevails.
Tornetta and his attorneys at Friedman Oster and Tejtel; Bernstein Litowitz Berger & Grossmann; and Andrews and Springer have been with the case for four years, hiring experts and conducting more than a dozen hearings.
Tornetta is also a plaintiff in another lawsuit that has survived a motion to dismiss and will go to trial next year, challenging the sale of Pandora Media Inc to Sirius XM Holdings Inc.
Lawmakers and judges have hoped for decades to encourage the biggest investors like Vanguard to take the lead in shareholder class-action and derivatives lawsuits like Tornetta’s, but have not met with much. lucky.
“Mutual funds may want to sue sometimes, but they need to have a relationship with management,” said Sean Griffith, a professor at the Fordham Center for Corporate Law. “They can be happy to have someone else do it for them.”
