Lawsuit claims Elon Musk and Tesla knew SolarCity was insolvent but still paid $2.6 billion...

midian182

TechSpot Editor
Staff member

Tesla’s $2.6 billion purchase of SolarCity was controversial from the beginning. CEO Musk held 22 percent of Tesla’s stock, making him the largest shareholder. He was also the largest shareholder of SolarCity, holding around 22 percent of its shares. The deal saw his personal investments converted to about $500 million in Tesla stock, writes Ars Technica. Additionally, SolarCity was founded by brothers Lyndon and Peter Rive, who are Musk’s cousins, and several Tesla board members at the time, including Musk’s brother, were directly connected to the company.

In a lawsuit filed in 2016 by shareholder Ellen Prasinos on behalf of all Tesla shareholders against Musk and Tesla’s board of directors, it’s alleged they failed to disclose “troubling facts” related to the deal, and that Musk used his influence to push it through without doing sufficient due diligence.

One of the claims is that SolarCity hid information from auditors Ernst & Young about payments due to lenders that would have been used to determine its financial state. It’s also claimed that close relations between itself and Tesla resulted in decisions that didn’t benefit shareholders.

"Almost immediately after the acquisition closed, SolarCity's auditors [Ernst & Young] confirmed that SolarCity was, in fact, insolvent," states the filing. It goes on to claim that SolarCity was only able to function because of money from SpaceX, another of Musk’s companies, which bought $225 million worth of bonds that violated SpaceX’s own internal policy. “SolarCity was the only public company in which SpaceX made any investments,” reads the suit.

“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,” Tesla said, in a statement. “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.”

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VitalyT

Russ-Puss
One pays over the roof for an insolvent company, which then provides a way for the large portion of it to find its way into the buyer's pocket, most likely through an off-shore. Tax evasion 101.
 
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Squid Surprise

TS Evangelist
While it certainly looks fishy, the fact that the shareholders DID approve the deal means they were either in on this or incompetent... They MUST have known that the company was founded by Musk's cousins and that he had 22% of it as well... kind of seems like sour grapes...
 
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Uncle Al

TS Evangelist
Insolvent companies are bought all the time, especially for their technology that the acquiring company may be able to better implement and profit from. The real issue here is the relatives that are on the board and knowingly withheld essential information prior to the purchase. The SEC should come down hard on this one and with the number of these activities by Musk, they should require him to resign and sell off his holdings in both companies or hold him accountable for fraud and punish him accordingly. Maybe share a cell with Maniford so they can trade investment tips ......
 

yRaz

Nigerian Prince
Insolvent companies are bought all the time, especially for their technology that the acquiring company may be able to better implement and profit from. The real issue here is the relatives that are on the board and knowingly withheld essential information prior to the purchase. The SEC should come down hard on this one and with the number of these activities by Musk, they should require him to resign and sell off his holdings in both companies or hold him accountable for fraud and punish him accordingly. Maybe share a cell with Maniford so they can trade investment tips ......
They're just trying to go after musk's money since Tesla is about to fail. This was approved by the board, the article states the claims as if they are fact. We actually don't know the facts yet so put the bias away and let's wait for the court fillings
 

EEatGDL

TS Evangelist
They're just trying to go after musk's money since Tesla is about to fail.


Dude, once production starts in China, it will be the only unstoppable American company. Ford's credit rate was just degraded to "junk" status and GMC got out of Europe with a strike coming in the US. GM never actually recovered from its bankruptcy; never redeemed its reputation inside or outside of the US.
 

aacole

TS Rookie
If Tesla was the only bidder on what turned out to be an insolvent company (Solar City), then the Solar City shareholders would have been in a lot more trouble if Tesla had just stepped aside and let Solar City fail. What is their complaint? From the point of view of the Tesla shareholder, I can see why you are mad by the inside dealing by Musk, but why sue if hurts the value of your Tesla investment? I guess the Tesla short-sellers are happy to see Tesla stock sink, but they're not the plaintiffs. (Also happy are the plaintiff-attorneys who are enriching themselves by finding problems with Tesla, even as the suit hurts the Tesla shareholders of today) The only people who might have an argument are former Tesla shareholders who believed that the SolarCity acquisition so hurt Tesla's prospects that they sold (which would have been a misguided reason to sell Tesla IMO because the Solar City acquisition was not material to Tesla's key business of developing and selling EVs.)
 

yRaz

Nigerian Prince


Dude, once production starts in China, it will be the only unstoppable American company. Ford's credit rate was just degraded to "junk" status and GMC got out of Europe with a strike coming in the US. GM never actually recovered from its bankruptcy; never redeemed its reputation inside or outside of the US.
So Tesla has the largest factory in the world inside the US but they're moving to China? That's a bizzare claim and I can't take you at your word. Can I have a source for your claims as.I personally haven't heard any of that and my understanding of the GM situation is very different
 

EEatGDL

TS Evangelist
So Tesla has the largest factory in the world inside the US but they're moving to China? That's a bizzare claim and I can't take you at your word.
Uhm... I didn't claim anything about Tesla factory's size relative to others, neither them moving to China. [Embedded links in text, ahead] They're building a factory in China, I understand it is close to start operating. China is a huge growing market, by manufacturing there they will benefit from tax breaks to better compete with the local and foreign competition, will ramp up produced vehicles, have a second production source, and lower manufacturing costs.
Also, China has been subsiding EVs for years, in proportion to their driving range. I couldn't find the easy-to-read historical graph, but years ago they basically subsided every EV. On time, they have stopped to subsidize the ones with the worst range and raise the minimum range required for subsidies. Here you can see the data for 2018 and 2019. Of course, Tesla would be the top dog and most benefited to compete there.
Can I have a source for your claims as.I personally haven't heard any of that and my understanding of the GM situation is very different
You could Google it yourself, but since you're open to know more about it, I'll gladly point you to them:
* Ford's credit score degrade
* GM leaving Europe
* Update on GM's strike across US and Canada

You're welcome.
 

yRaz

Nigerian Prince
Uhm... I didn't claim anything about Tesla factory's size relative to others, neither them moving to China. [Embedded links in text, ahead] They're building a factory in China, I understand it is close to start operating. China is a huge growing market, by manufacturing there they will benefit from tax breaks to better compete with the local and foreign competition, will ramp up produced vehicles, have a second production source, and lower manufacturing costs.
Also, China has been subsiding EVs for years, in proportion to their driving range. I couldn't find the easy-to-read historical graph, but years ago they basically subsided every EV. On time, they have stopped to subsidize the ones with the worst range and raise the minimum range required for subsidies. Here you can see the data for 2018 and 2019. Of course, Tesla would be the top dog and most benefited to compete there.

You could Google it yourself, but since you're open to know more about it, I'll gladly point you to them:
* Ford's credit score degrade
* GM leaving Europe
* Update on GM's strike across US and Canada

You're welcome.
I wasn't being a jerk ,jeez. I just asking for some sources because my understanding of the situation was different than that. Or should I just believe everything I see in the comments section of a tech website?
 

EEatGDL

TS Evangelist
I wasn't being a jerk ,jeez. I just asking for some sources because my understanding of the situation was different than that. Or should I just believe everything I see in the comments section of a tech website?
I know you weren't, I know when I see true intention of knowing, else I wouldn't have bothered gathering all the links for a reply. The second part of my response maybe came out wrong but I was annoyed, I'm the one sounding like a jerk and I apologize.
 

DP013

TS Rookie
You talk **** about someone you don't even know.
he is from africa from a broken home
he figured out "on his own" how to tunnel a passageway
he figured out "on his own" how to make rockets
he figured out "on his own" how to make electric cars
what have you figured our? huh?
 
R

retsxel

I think people are missing something. SolarCity had assets Tesla/SpaceX needed. Whether the company was insolvent or not was irrelevant. Buying it for it's assets was something Tesla needed for progress into it's own asset development. This is a non-issue and the law-suit is unlikely to go anywhere.
 

wiyosaya

TS Evangelist
I think people are missing something. SolarCity had assets Tesla/SpaceX needed. Whether the company was insolvent or not was irrelevant. Buying it for it's assets was something Tesla needed for progress into it's own asset development. This is a non-issue and the law-suit is unlikely to go anywhere.
I also think people are missing something - something that looks very much like nepotism.
 

DP013

TS Rookie
Continue to be cynical hating everything around you except what pleases you.
look what it has to offer. Maybe try looking at the good in something instead of the bad.
 

wiyosaya

TS Evangelist
There could be some of that, but that's not against the law either. Nor should it be..
It does and will present problems when there are familial attachments in financial deals like this. Many companies have rules against nepotism in the work place for good reason, IMO.
 

wiyosaya

TS Evangelist
Continue to be cynical hating everything around you except what pleases you.
look what it has to offer. Maybe try looking at the good in something instead of the bad.
Like it or not, its public knowledge that Musk/Tesla have significant problems. Tesla has lost approximately $500 Million each quarter for some time now. Musk, himself, has said that Tesla has a limited time frame to turn this around or they might go out of business. https://www.techspot.com/news/80132-elon-musk-reportedly-tesla-has-10-months-break.html

Need I mention Musk's brush with calling a heroic diver a pedophile?

As I see it, Tesla's troubles will be compounded with the impending release of EVs from the major automobile manufacturers.

You talk **** about someone you don't even know.
he is from africa from a broken home
he figured out "on his own" how to tunnel a passageway
he figured out "on his own" how to make rockets
he figured out "on his own" how to make electric cars
what have you figured our? huh?
Musk has engineers that work for him. It is highly doubtful that he had anything other than a rough idea of what he wanted to do. His engineers stepped in and fleshed out his ideas and not all of them are successful.

This is reality, not the land of milk and honey, nor does Musk have one ring to rule them all.
 
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captaincranky

TechSpot Addict
You talk **** about someone you don't even know.
he is from africa from a broken home
he figured out "on his own" how to tunnel a passageway
he figured out "on his own" how to make rockets
he figured out "on his own" how to make electric cars
what have you figured our? huh?
You are suffering from idolatry and delusionality, but do we make fun of you for it? NO! Well, at least not at the moment.

Here's the Golden cow from "The Ten Commandments":



Notice by virtue of its golden makeup, it's the only one in the scene that has any actual value. Yet all the peasants danced around it and worshiped it. The same holds true for Elon Musk. In fact his description of "how ideas race through his head", is more likely to indicate a hyper manic state, than true creativity. Virtually every "idea" he's had has either been tried before, or come from science fiction.

Tesla itself has been hemorrhaging money at more than a quarter billion dollars a quarter, yet its stock prices seem to go up. And who said they don't serve Kool-aid at the NYSE?
 
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koblongata

TS Addict
Perhaps so. But at this point, I would have to consider Tesla, "well past the point of being considered a start up".
Was referring to SolarCity though, it is especially hard sector in green energy everyone is struggling many went bankrupt don't know why.

Yea..., but if comparing Tesla to established auto makers, most with 100 years of history... Tesla is still a start up... And a lot of auto makers want Tesla bankrupt that's for sure...
 

captaincranky

TechSpot Addict
Was referring to SolarCity though, it is especially hard sector in green energy everyone is struggling many went bankrupt don't know why.
Let me help you with that. For years I've been getting mail and door knocks, which in essence announced, "you can help save the planet by going green, if you buy your electricity from us". As it turns out, the "green energy" was a few cents more per KW hour. Well, people can't afford "going green", it's that simple.

As for Solar City", even when Musk's frauds are blatant and exposed, you regurgitate the perpetual Musk propaganda narrative "all those big companies want poor little me out of the picture because I'm a huge threat to them, now give me some more money".

Yea..., but if comparing Tesla to established auto makers, most with 100 years of history... Tesla is still a start up... And a lot of auto makers want Tesla bankrupt that's for sure...
Like I said, Musk needs your bank account's contents to dig his way out of this situation, fight those robber barons in Detroit, and conquer the CO2 menace threatening the planet. He simply can't do this single handedly. Cut him yet another check, will ya?

And really, wouldn't you feel terrible if poor Elon's's brother had to live in a house worth less than a few million dollars?
 
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captaincranky

TechSpot Addict
If Tesla was the only bidder on what turned out to be an insolvent company (Solar City), then the Solar City shareholders would have been in a lot more trouble if Tesla had just stepped aside and let Solar City fail. What is their complaint? From the point of view of the Tesla shareholder, I can see why you are mad by the inside dealing by Musk, but why sue if hurts the value of your Tesla investment? I guess the Tesla short-sellers are happy to see Tesla stock sink, but they're not the plaintiffs. (Also happy are the plaintiff-attorneys who are enriching themselves by finding problems with Tesla, even as the suit hurts the Tesla shareholders of today) The only people who might have an argument are former Tesla shareholders who believed that the SolarCity acquisition so hurt Tesla's prospects that they sold (which would have been a misguided reason to sell Tesla IMO because the Solar City acquisition was not material to Tesla's key business of developing and selling EVs.)
So, as I understand it, you're alleging that, "Tesla is too big to fail". Now where have we heard that before?
 
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koblongata

TS Addict
With the way Tesla has been spurting money out a perforated jugular, those auto makers will only have to sit back and enjoy the popcorn! :laughing:
Yea... It can die any moment for many years...

With traditional auto makers' might, it had and still has very little chance to survive, Tesla was just a niche electric sports car company building cars mostly by hand in a garage factory 10 years ago, going mass market is hard I guess, all the factories machines and tens of thousands of workers know-hows and R&D... Tesla was still learning how to do large scale manufacturing properly just few years back. Cringe worthy.

It still successfully led the EV revolution though, becoming a threat big enough forced big players to change, and maybe that's enough... Let's enjoy the popcorn watching those *****s in Tesla die. LOL.