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In this photo illustration, the Tesla, Inc. logo is shown. on the smartphone screen.
Rafael Henrique | Light Rocket | Getty Images
Tesla IncThe company’s directors will return $735 million to the company to settle claims they overpaid in one of the largest shareholder settlements of its kind, according to a Delaware court filing Monday.
The settlement resolves a 2020 lawsuit by a pension fund that held Tesla shares that challenged stock options granted to Tesla managers starting in June 2017.
The settlement does not affect Elon Musk’s $56 billion compensation package, which shareholders are contesting in a separate lawsuit that went to trial last year. A verdict is expected soon in the Musk case.
The directors, including Oracle co-founder Larry Ellison, agreed to return the equivalent value of 3.1 million Tesla stock options, according to a court filing.
Tesla did not respond to a request for comment. The board members acted in good faith and in the best interests of Tesla shareholders but agreed to settle to remove the risk of litigation for themselves and the company, according to a court filing.
The board members have been accused of awarding themselves unfair and excessive compensation in the form of about 11 million stock options from 2017 to 2020 that allegedly grossly exceeded the company’s board standards.
The case was brought by the City of Detroit Fire and Police Retirement System in 2020 and the settlement was paid to Tesla in the company’s favor, a type of case known as a derivative lawsuit. The settlement is one of the largest ever in a derivative case at Chancery Court, a major venue for litigation between shareholders.
Tesla and Musk have a reputation for fighting lawsuits. Musk successfully went to trial for defamation, a case accusing him of violating securities law and a lawsuit against shareholders accusing him of forcing Tesla to buy SolarCity.
As part of the settlement, the board members also agreed not to receive any compensation for the years 2021, 2022 and 2023 and the board will change how compensation is determined.
Tesla defended the lawsuit by saying that the company experienced almost unprecedented growth, which led to a tenfold increase in the company’s stock price. Along with this gain in stock value, the value of stock options granted to directors and Musk rose sharply.
Tesla argued that it used stock options to ensure managers’ incentives were in line with investors’ goals.
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