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Published on June 13, 2024
Elon Musk Accused by Tesla Shareholders of Conflicts of Interest and Resource MisappropriationSource: U.S. Air Force / Trevor Cokley, Public domain, via Wikimedia Commons

Elon Musk, CEO of Tesla and the lead figure behind several high-profile tech endeavors, is now facing legal pressure from Tesla shareholders over what they describe as conflicts of interest and the misallocation of company resources. Shareholders are taking legal action against Musk for allegedly starting a competing AI company, xAI, siphoning off talent and resources from Tesla, and purportedly using insider information to profit from Tesla stock sales.

According to a lawsuit filed by the Cleveland Bakers and Teamsters Pension Fund in Delaware Chancery Court, as reported by TechCrunch, Musk has breached fiduciary duties and enriched himself at the expense of Tesla shareholders. The complaint detailed a scenario where at least 11 Tesla employees were allegedly diverted to xAI, and Tesla AI-related data was supposedly shared with the new venture. At the same time, the lawsuit claims that soon after Tesla began redirecting its internal talent and resources, the suit surfaces as Tesla prepares for its annual meeting, where shareholders will reconsider a $56 billion compensation package for Musk previously struck down by the courts earlier this year.

In a separate but related legal complaint, the lawsuit reported by Reuters, initiated by the Employees' Retirement System of Rhode Island (ERSRI), Musk is accused of using insider information for personal gain. The lawsuit alleges that Musk and his brother, Kimbal, collectively sold approximately $30 billion in Tesla stock. ERSRI maintains that these sales were timed before negative news about Tesla was made public, potentially affecting stock prices. The institutional shareholder is urging the court to mandate Musk return those "unlawful profits."

The myriad of legal challenges highlights concerns among investors about Musk's stewardship of Tesla and the transparency of his actions, particularly regarding financial maneuvers and corporate governance. Accusations include leveraging insider information to offload Tesla stock and compromising Tesla's market positioning by prioritizing other ventures like xAI and the X messaging platform. These lawsuits underscore a growing discontent with Musk's handling of conflicts of interest. Despite Musk's claims that Tesla's Texas data center's inability to store the AI processors was the reason for diverting the chips, no comments have been made by Musk or Tesla in response to the legal proceedings thus far.