EFiled: Mar 11 2021 04:57PM EST

Transaction ID 66415547
Case No. 2021-0199-JRS
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CHASE GHARRITY, 2021-0199-JRS

C.A. No.____________

Plaintiff,
PUBLIC VERSION DATED:
MARCH 11, 2021
vs.

ELON MUSK, BRAD W. BUSS,

ROBYN M. DENHOLM, IRA
EHRENPREIS, LARRY ELLISON,
ANTONIO J. GRACIAS, STEVE
JURVETSON, HIROMICHI
MIZUNO, JAMES MURDOCH,
KIMBAL MUSK, LINDA JOHNSON
RICE, and KATHLEEN WILSON-
THOMPSON

Defendants,
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TESLA, INC.,

Nominal Defendant.

VERIFIED STOCKHOLDER
DERIVATIVE COMPLAINT

Plaintiff Chase Gharrity brings this action derivatively on behalf of Nominal

Defendant Tesla, Inc. (“Tesla” or the “Company”), and alleges upon: (1) personal

knowledge as to himself and his own acts; (2) a review of publicly available

information, including court filings; (3) filings with the United States Securities and

Exchange Commission (“SEC”); and (4) the investigation of counsel, including

books and records produced by the Company in response to Plaintiff’s demands

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made pursuant to 8 Del. C. § 220 (the “Section 220 Demands”), and as to all other

matters upon information and belief, as follows:1

INTRODUCTION

1. Despite a judgment entered in an action brought by the SEC which

prohibits Defendant Elon Musk from “Tweeting” about Specified Information

without the pre-approval of a mandated “Securities Counsel” and Tesla’s Disclosure

Controls Committee, Musk has continued to violate the Judgment and the Board of

Directors have continued to fail to exercise effective oversight of Musk.

2. Tesla’s failure to abide by the terms of the SEC Judgment exposes it to

substantial penalties and fines, As Tesla admitted in its Form 10-K filed February 8,

2021, “if there is a lack of compliance or an alleged lack of compliance, additional

enforcement actions or other legal proceedings may be instituted against us.”

3. The documents produced by Tesla in response to Plaintiff Gharrity’s

Section 220 inspection demand demonstrate Defendants’ continuing breaches of

fiduciary duty. For example, more than a year after the Amended Judgment in the

SEC action was entered on April 30, 2019, Musk issued a tweet at 11:11 a.m EST

on May 1, 2020 (the “11:11 tweet”) that stated “Tesla stock is too high IMO.” In

response to this Tweet,

1
Unless otherwise noted, all emphasis is added and internal citations are omitted.
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 4. Three days later, on May 4, 2020, Tesla

5. On May 8, 2020,

stated

that

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 6.

The letter stated that

7. These facts demonstrate the Board’s repeated breaches of their duties

of loyalty and good faith. The Board was aware of and had approved the judgment

and amended judgment with the SEC, and had actual knowledge of the steps that

Tesla was required to take in order to comply with the judgments. The Board has

repeatedly failed to do so by,

8. Similar to its repeated failure to implement and apply internal controls

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regarding oversight of Mr. Musk, the Board has also consistently failed to ensure

that Tesla has an independent General Counsel who can provide advice untainted by

Musk. On December 12, 2009, it was reported that Jonathan Chang was resigning

as Tesla’s General Counsel in an article entitled “Tesla Loses Its Third General

Counsel in a Year.”2 The article noted that “With Chang’s departure, Tesla has now

lost three general counsels in the past year. Tesla’s general counsel Todd Maron left

the company in December 2018. Maron’s successor, Dane Butswinkas, left the

company in February 2019 after just two months on the job because he was not a

good cultural fit, a source familiar with the situation told CNBC at the time.”

9. The fact that Tesla lost three general counsel’s in one year reflects the

fact that none of them were able to exercise any independent advice on matters that

differed from Musk’s desired outcome. The Board was acutely aware of the need

for Tesla to have a General Counsel who could provide advice as to what was in

Tesla’s best interests. It was also well aware that Musk was interfering with the

General Counsel and dictating Tesla’s positions on issues, including with respect to

compliance with the SEC’s Judgment. The Board has failed to take necessary action

to ensure that Tesla has an independent General Counsel and to ensure that Musk

does not improperly interfere with the General Counsel’s job of representing the best

2
See Annie Palmer, “Tesla Loses Its Third General Counsel in a Year,” CNBC, Dec.
12, 2019.
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interests of Tesla, thus breaching its duty of loyalty.

10.

11. The genesis of the SEC’s lawsuits against Musk and Tesla was the

following August 7, 2018 tweet issued by Musk:

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 12. The Board did not pre-approve this material statement; it also did not

make any SEC filings regarding this potential $71 billion transaction.

13. Once the market reacted to Musk’s offer on Twitter, he subsequently

withdrew the offer. Thereafter, multiple lawsuits were filed against Musk and Tesla,

including complaints filed by the SEC, SEC v. Elon Musk, No. 1:18-cv-8865

(S.D.N.Y.) (referred to herein as the “SEC Action”); SEC v. Tesla, Inc., No. 1:18-

cv-8947 (S.D.N.Y.) (the “Tesla SEC Action”), as well as claims against the

Company under the federal securities laws that were consolidated before the United

States District Court for the Northern District of California, In re Tesla, Inc.

Securities Litigation, No. 3:18-cv- 04865 (N.D. Cal.). (the “Securities Action”). The

Company’s motion to dismiss was recently denied in the Securities Action, and the

Company faces the prospect of substantial damages in that case. Id., 477 F.Supp. 3d

903 (N.D. Cal. Apr. 15, 2020).

14. Just two days after the SEC Action and the Tesla SEC Action were

filed, Tesla was forced to settle the cases (the “SEC Settlements”). As part of the

financial settlements with the SEC, both Musk and Tesla each agreed to pay $20

million. In addition, Tesla agreed to implement — and Musk agreed to comply with

— mandatory procedures to oversee and pre-approve Musk’s Tesla-related written

communications that reasonably could contain information material to Tesla or its

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stockholders. Pursuant to the SEC Settlements, Tesla also formed a Disclosures

Control Committee, consisting of Defendants Antonio Gracias, Brad Buss, and

James Murdoch, who have purportedly “engaged in continuous monitoring and audit

of compliance with the Final Judgments.”

15. These settlement terms were designed to prevent future violations of

the type alleged by the SEC against Musk and were demanded by the SEC with a

view towards preventing Musk from disseminating misleading or inaccurate

information via Twitter or other means in the future.

16. A final judgment against Tesla was entered on October 16, 2018 by the

U.S. District Court for the Southern District of New York (the “District Court”).

The final judgment requires Tesla to, among other things:

implement mandatory procedures and controls to oversee all of Elon

Musk’s communications regarding the Company made in any format,
including, but not limited to, posts on social media (e.g., Twitter), the
Company’s website (e.g., the Company’s blog), press releases, and
investor calls, and to pre-approve any such written communications that
contain, or reasonably could contain, information material to the
Company or its shareholders. The definition of, and the process to
determine, which of Elon Musk’s communications contain, or
reasonably could contain, information material to the Company or its
shareholders shall be set forth in the Company’s disclosure policies and
procedures.

17. A final judgment was also entered against Elon Musk that requires

Musk, among other things, to:

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 comply with all mandatory procedures implemented by Tesla, Inc. (the
“Company”) regarding (i) the oversight of communications relating to
the Company made in any format, including, but not limited to, posts
on social media (e.g., Twitter), the Company’s website (e.g., the
Company’s blog), press releases, and investor calls, and (ii) the pre-
approval of any such written communications that contain, or
reasonably could contain, information material to the Company or its
shareholders.

18. Pursuant to the SEC Settlement, Tesla adopted a “Senior Executives

Communications Policy” on December 11, 2018. The Senior Executives

Communications Policy required Musk to obtain pre-approval prior to publishing

any communications that contain or reasonably could be viewed to contain material

non- public information, including any previously unpublished guidance. It took

Musk barely two months to breach the policy.

19. In violation of the SEC Judgments, on February 19, 2019 Musk issued

the following tweet, which he corrected just four hours later, concerning the

Company’s production output:

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 20. The next day, Tesla’s General Counsel Dane Butswinkas

(“Butswinkas”), the former Chairman of Williams & Connolly who was hired by the

Company in the wake of the SEC Settlements and whose presence the market had

widely hoped would be a check on Musk’s increasingly erratic behavior, announced

he would be leaving the Company just two months after he started.

21. On February 25, 2019, the SEC filed a Motion to for an Order to Show

Cause in the SEC Action, alleging that Musk had violated the SEC Settlement. The

next day, the District Court ordered Musk to respond by March 11, 2019.

22. The SEC and Musk thereafter entered into a revised settlement

agreement, according to which Tesla again revised its policies purportedly

governing Musk’s use of Twitter, and on April 30, 2019, the Court overseeing the

SEC Action approved the revised settlement. This revised settlement agreement

required that Tesla revise the Senior Executives Communications Policy to explicitly

outline additional categories of communications that needed to be pre-approved by

“Disclosure Counsel” prior to publication, including communications about

guidance, business plans or performance, Tesla’s securities, and Tesla’s financial

condition. (the “Revised Policy”)

23. However, Musk has continued to issue Tweets without the required pre-

approval of Tesla’s Securities Counsel and Disclosure Controls Committee. On July

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29, 2019, Musk responded to a reporter’s inquiry on Twitter, disclosing previously

undisclosed guidance on Tesla’s solar roof production (the “Guidance Tweet”):

24. Tesla’s Revised Policy applied to the July 29th Guidance Tweet. In

response to multiple press inquiries regarding whether this communication was

vetted as required, Tesla refused to disclose whether the guidance given had received

pre-approval. Tesla did not manufacture 1,000 solar roofs per week in 2019.

25. In response to Plaintiff Gharrity’s Section 220 inspection demand,

Tesla produced documents

. Specifically, on August 7, 2019 Tesla

26.

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 27.

28.

29. Despite , on May 1, 2020 at 11:11

am, Musk once again disregarded the Revised Policy, tweeting that Tesla’s stock

was overvalued (the “Valuation Tweet”):

30. On May 1, 2020, Tesla’s stock price dropped from $761.31

immediately prior to Musk’s tweet to a low of $686.93, or 9.7% in the hours

following the tweet — amounting to an almost $14 billion loss in market

capitalization.

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31. In response to this Tweet,

32. Three days later, on May 4, 2020, Tesla

33. On May 8, 2020,

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 34. The failure of Tesla’s Board to ensure compliance with the Amended

Final Judgment with the SEC has caused substantial damage to Tesla, including

billions of dollars lost in market capitalization and requiring Tesla to spend nearly a

billion dollars of its cash to handle a convertible debt maturity. To date, the Company

has agreed to pay a $20 million fine to the SEC for the failure to monitor Musk’s

statements on Twitter, and faces hundreds of millions of dollars, if not more, in

potential damages and the payment of legal fees related to the federal securities fraud

class action cases that were filed in response to Musk’s Go-Private tweets, which

cases survived a motion to dismiss on April 15, 2020. Tesla’s business, goodwill,

and reputation with its customers and stockholders also have been harmed.

35. Musk’s wrongful conduct has caused, and will continue to cause,

substantial harm to Tesla, including damage to the Company’s market capitalization

and stock price, as well as the costs of attorneys’ fees, lost productivity, and other

costs associated with the SEC Actions, class action securities litigation, and related

investigations. This action seeks to redress this and the other harms caused to the

Company by the breaches of fiduciary duties by Musk and the Board.

36. Plaintiff has not made a pre-suit demand on the Board because such a

demand would be a futile, wasteful, and useless act. The Board has failed to curtail

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Musk’s unlawful conduct, even after entry of the Judgments, and has failed to ensure

proper oversight and to enact adequate internal controls, causing (and continuing to

cause) financial and reputational harm to the Company.

THE PARTIES

A. Plaintiff

37. Plaintiff Chase Gharrity is a current stockholder of Tesla and has

continuously been a stockholder of the Company at all times relevant herein.

B. Nominal Defendant Tesla

38. Nominal Defendant Tesla is a Delaware corporation headquartered in

Palo Alto, California. Tesla common shares are traded on the NASDAQ under the

symbol “TSLA.” Tesla designs and manufactures high-end electric cars. Tesla is

dominated and controlled by Musk, Tesla’s co-founder, CEO, largest stockholder,

and former Chairman.

C. The Tesla Board Defendants

i. Elon Musk
39. Defendant Musk is a Director, co-founder, the CEO, and “Product

Architect” of Tesla. Musk has served as CEO since October 2008. Musk previously

served as Chairman of the Tesla Board from April 2004 until September 2018, when

Musk was forced to step down as Chairman in connection with the SEC Settlement.

Tesla admits in its SEC filings that Musk is not an independent director of the

Company. At all relevant times, Musk has also been the Company’s largest
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stockholder. As of the filing of this Complaint, Musk owns approximately 20.8% of

Tesla’s common stock.

ii. Kimbal Musk

40. Defendant Kimbal Musk (“K. Musk”) has served on the Tesla Board

since April 2004. Although not an employee of the Company, Tesla concedes in its

SEC filings that Kimbal Musk is not an independent director of the Company.

41. K. Musk is the brother of Elon Musk and cousin of Lyndon and Peter

Rive, SolarCity’s founders. K. Musk is also a director of Space X, and a limited

partner in Valor Equity Partners II, L.P. (in which his brother Musk has also

invested) and Valor Equity Partners III-A, L.P., both of which are funds advised by

Gracias’s private equity firm, Valor.

42. Elon Elon Musk, Gracias, Ehrenpreis and Jurvetson have each invested

in Kimbal Musk’s restaurant company, The Kitchen Café.

43. As a director of Tesla, K. Musk earned nearly $7 million in fiscal year

2018.

iii. Gracias
44. Defendant Antonio J. Gracias (“Gracias”) has served as a director of

the Company since May 2007. Gracias is the founder, managing partner, CEO,

Chief Investment Officer, director and sole owner of private equity firm Valor

Management Corp., d/b/a Valor Equity Partners (“Valor”).

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 45. Gracias has been described as one of Elon Musk’s closest friends, and

in a December 29, 2018 article, The New York Times described Gracias as having

“close personal and professional ties to” Musk. Musk even gave Gracias the second

Tesla Roadster ever made.

46. Gracias himself testified in the SolarCity Case that he had been close

personal friends with Musk for over 20 years. Gracias also testified that he was also

good friends with Musk’s family, including K. Musk, having vacationed with both

around the country and the world, having attended K. Musk’s wedding, and having

even attended family birthday parties together.

47. Among other things, Gracias has long been an investor in Elon Musk’s

enterprises, dating back to his investment in PayPal. Gracias and Valor participated

in several pre-IPO venture funding rounds for SolarCity, Tesla and SpaceX, and

Gracias served on the boards of directors of all three companies at the time of the

acquisition of SolarCity by Tesla. He continues to serve on the boards of both Tesla

and SpaceX. Musk has also invested in

48. Musk’s brother, K. Musk, also invests in

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 49. Notwithstanding his friendship and involvement with Musk, Gracias

has served as Tesla’s purported “Lead Independent Director” since September 2010.

Tesla has stated that this role gives Gracias “broad authority to direct the actions of

[Tesla’s] independent directors.” In this role, Gracias, among other things: (a)

reviews the agenda and materials for meetings of the independent directors; (b)

consults with the CEO and Chairman (i.e., Elon Musk) regarding Tesla Board

meeting agendas, schedules and materials; (c) communicates with the CEO and

Chairman; (d) acts as a liaison between the CEO and Chairman and the independent

directors when appropriate; (e) raises issues with management on behalf of the

independent directors; (f) annually reviews, together with the Nominating and

Corporate Governance Committee, the Tesla Board’s performance during the prior

year; and (g) serves as the Tesla Board’s liaison for consultation and communication

with stockholders as appropriate.

50. Glass Lewis and Institutional Shareholder Services (ISS) recommended

that shareholders vote against Gracias when he was last up for re-election to the

board in 2018.

51. As a director of Tesla, Gracias earned over $13 million in fiscal year

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2018.

iv. Denholm
52. Defendant Robyn M. Denholm (“Denholm”) has served on the Tesla

Board since August 2014. Since November 2018, Denholm has served as Chair of

the Tesla Board, after Musk was forced to step down in connection with the SEC

Settlements concerning the Go-Private Tweets. Denholm also assumed the position

of Chair of the Disclosure Controls Committee that Tesla was forced to create as

part of the SEC judgments. She is also a member of the Audit Committee and the

Compensation Committee.

53. Denholm previously served as Executive Vice President, Chief

Financial and Operations Officer at Juniper Networks, Inc. (“Juniper”) from July

2013 until her retirement in February 2016. Previously, she served as Juniper’s

Executive Vice President and CFO since August 2007. Tesla purchases networking

equipment manufactured by Juniper in the ordinary course of business through

resellers.

54. Denholm was the CFO and Head of Strategy of Telstra Corporation

Ltd. (“Telstra”),

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 55. Denholm is indebted to Elon Musk. Denholm left Juniper in July 2016,

and until 2017 did not have a full-time job. Yet, as a director of Tesla, she earned

nearly $5 million in fiscal years 2016 and 2017 and another nearly $7 million in

fiscal year 2018. In addition, as described further herein, Musk’s has admitted that

he “handpicked” Denholm to succeed him as Chair of the Board, and that it is “not

realistic” that Denholm has any ability to control or restrict his actions.

v. Ehrenpreis
56. Defendant Ira Ehrenpreis (“Ehrenpreis”) has served on the Tesla Board

since May 2007. He is the Chair of both the Compensation Committee and the

Nominating and Governance Committee of the Tesla Board.

57. In a December 29, 2018 article, The New York Times described

Ehrenpreis as having “close personal and professional ties to” Musk. Ehrenpreis was

an early investor in all things Elon Musk and has stuck with the entrepreneur during

some of his darkest days.

58. Ehrenpreis is also an investor in and serves on the board of directors of

Mapbox, Inc. (“Mapbox”), a provider of custom online maps. In December of 2015,

Tesla and Mapbox entered into an agreement pursuant to which Tesla expects to pay

Mapbox certain ongoing fees, including $5 million over the first 12 months of the

agreement.

59. Since 2015, Ehrenpreis has been a managing partner and co-owner of

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venture capital firm DBL Partners (“DBL Partners”), which he co-founded with

fellow managing partner and co-owner Nancy Pfund (“Pfund”). Pfund was an

observer on the Tesla Board from 2006 to 2010. Pfund was also a member of the

SolarCity board of directors and one of the two members of the Special Committee

of the SolarCity board that negotiated and approved Tesla’s acquisition of SolarCity.

Pfund is a close friend of Elon Musk’s and has said that “[h]e’s always been a master

of the universe in my mind.”

60. Pfund’s and Ehrenpries’s DBL Partners has invested approximately

$166 million in Musk company SpaceX, Ehrenpreis has personally owned hundreds

of thousands of shares of SpaceX stock.

61. Ehrenpreis has stated that Musk has had a significant influence on his

professional career. As a director of Tesla, Ehrenpreis earned nearly $10 million in

fiscal year 2018.

vi. Ellison
62. Defendant Larry Ellison (“Ellison”) has served as a director of the

Company since December 27, 2018. Ellison became part of Tesla’s Board in

connection with the SEC Settlements, which required Tesla to add two independent

board members and an independent chairman.

63.

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 64. Ellison is the founder and Chief Technology Officer of Oracle

Corporation, of which Tesla is a customer.

65. Though designated as an independent board member, Ellison describes

Musk as his “very close friend” and has been publicly critical of what he claims is

unfair media coverage of Musk. Further, Ellison has a $1 billion stake in Tesla,

making him the Company’s second-biggest individual investor after Musk.

vii. Mizuno
66. Defendant Hiromichi Mizuno (“Mizuno”) has served as a director of

the Company since April 2020. Mizuno is a member of the Audit Committee.

67. Prior to his appointment as a director of Tesla, Mizuno was the Chief

Investment Officer of Japan’s government pension fund, which held almost $1

billion in Tesla stock.

viii. Murdoch
68. Defendant Defendant James Murdoch (“Murdoch”) has served as a

director of the Company since 2017. Murdoch is a member of the Tesla Board’s

Nominating and Governance Committee, Audit Committee, and Disclosure Controls

Committee. He is also a member of the Disclosure Controls Committee responsible

for reviewing Musk’s tweets.

69. As a director of Tesla, Murdoch earned over $9 million in fiscal year

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2018.

ix. Wilson-Thompson
70. Defendant Kathleen Wilson-Thompson (“Wilson-Thompson”) has

served as a director of the Company since December 27, 2018. Wilson-Thompson

became part of Tesla’s Board in connection with the SEC Settlements, which

required Tesla to add two independent board members and an independent

chairperson. She is also a member of the Disclosure Controls Committee

responsible for reviewing Musk’s tweets.

Former Directors

a. Buss

71. Defendant Brad W. Buss (“Buss”) served as a director of the Company

from 2009 until June of 2019. Buss served on the Tesla Board’s Audit,

Compensation, Nominating and Governance, and Disclosure Controls Committees.

Upon information and belief, Buss did not have full time employment from early

2016 until his departure from the Tesla Board, but earned $3,357,002 as a director

of Tesla for fiscal year 2017 and $6,877,402.95 in fiscal year 2018.

72. In a December 29, 2018 article, The New York Times described Buss as

having “close personal and professional ties to” Musk. For example, Buss was

previously the Chief Financial Officer for, and a consultant to, SolarCity, and as a

result he is indebted to Elon Musk because of, among other things, the $32 million

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Buss received for 18 months of work as SolarCity’s CFO.

73. Further, prior to joining SolarCity, Buss was the CFO and EVP of

Finance and Administration of Cypress Semiconductor Corporation (“Cypress”), a

semiconductor design and manufacturing company. Cypress provided a third-party

manufacturer engaged by Tesla with semiconductors for use in Tesla’s Model S.

Payments by Tesla allocable to the Cypress semiconductors were approximately

$35,000 in 2012, $605,000 in 2013 and $817,000 in 2014. Tesla’s selection of

Cypress’s “TrueTouch automotive touchscreen solution for the infotainment system

in the Model S” was touted by Cypress as a significant highlight of its third fiscal

quarter of 2012.

b. Rice

74. Defendant Linda Johnson Rice (“Rice”) served as a director of the

Company from 2017 until June of 2019. Rice was a member of the Tesla Board’s

Compensation Committee.

75. As a director of Tesla, Rice earned over $8 million in fiscal year 2018.

***

76. As used herein, the “Board” or the “Tesla Board” collectively refers to

Defendants Musk, Buss, Denholm, Ehrenpreis, Gracias, Jurvetson, Murdoch, K.

Musk, and Rice; and, for periods after December 27, 2018, Ellison and Wilson-

Thompson; for periods after June 11, 2019, excluding Rice and Buss; and, for
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periods after April 23, 2020, Mizuno.

c. Jurvetson

77. Defendant Steve Jurvetson (“Jurvetson”) served on the Tesla Board

from 2009 until 2020.

78. In a December 29, 2018 article, The New York Times described

Jurvetson as having “close personal and professional ties to” Musk. Jurvetson was

a managing director of venture capital firm Draper Fisher Jurvetson (“DFJ”). DFJ

invested in Tesla before its 2010 initial public offering (“IPO”), participating in

Tesla’s Series C (closed May 1, 2006), Series D (closed May 11, 2007), and Series

E (closed February 8, 2008) venture funding rounds. Thereafter, Jurvetson joined

the Tesla Board. In addition, DFJ and Jurvetson owned substantial shares of

SolarCity at the time of Tesla’s SolarCity acquisition, and under Jurvetson’s

stewardship DFJ also became a “significant stockholder” of SpaceX, participating

in numerous venture funding rounds for that company. Jurvetson also served on the

Board of SpaceX.

79. Further, not only did DFJ invest in Musk, Musk invested in DFJ: the

Elon Musk Trust is a limited partner in the Draper Fisher Jurvetson Fund X, L.P.

80.

81. In November 2017, Jurvetson was ousted from his own firm, DFJ,
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following scandalous revelations about his personal conduct. Nonetheless, thanks to

his friendship with Musk — who himself was implicated in one Jurvetson’s

infamous parties — Jurvetson has not suffered the same fate with respect to his roles

with Tesla and SpaceX. While Tesla and SpaceX placed him on “leave,” he

continues to attend events for both companies as a VIP, and he still serves as a

Director of both Tesla and SolarCity.

82. Recently, Jurvetson participated in early funding rounds for Musk’s

The Boring Company — a company that manufactures hats and flamethrowers, and

aims to provide infrastructure and tunnel construction services.

FACTUAL BACKGROUND

A. A Brief History of Tesla and Elon Musk’s Use of His Personal

Twitter Account to Disseminate Information About Tesla

83. On June 29, 2010, Tesla conducted its IPO. The Company was founded

on July 1, 2003 in San Carlos, California.

84. After’s Tesla’s founding, Elon Musk acquired a controlling stake in the

Company, participating in Tesla’s Series B, C, D and E venture financing rounds.

Prior to the Company’s IPO, Elon Musk invested approximately $70 million in

Tesla.

85. Musk solidified his control of Tesla in November 2007, when he forced

the founder and then-CEO Eberhard out of the Company. In October 2008, Musk

appointed himself CEO.

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 86. At all times since Tesla’s IPO, Elon Musk has been the Company’s

largest stockholder, owning nearly at least 20% or more of the Company’s stock.

87. Few companies are so closely associated with the identity of a single

individual. Musk is the “face of Tesla” and the dominant force behind Tesla’s

corporate strategy.

88. As the Delaware Court of Chancery recently stated, “[t]hat Musk is the

‘face of Tesla’ cannot meaningfully be disputed.” In re Tesla Motors, Inc.

Stockholder Litigation, C.A. No. 12711-VCS, at 46 (Del. Ch. Mar. 28, 2018) (Trans.

ID 61851776). In fact, Tesla freely admits — including in its most recent Form 10-

K, filed February 19, 2019 (at 27-28) — that the Company is “highly dependent on

the services of Elon Musk” and that Musk “spends significant time with Tesla and

is highly active in [Tesla’s] management.” Thus, Musk is inextricably involved in

the Company’s affairs and exerts a level of influence and day-to-day control over

Tesla far beyond what would be typical given his equity stake.

89. In addition to his “highly active” role with Tesla, Musk holds himself

out as a visionary in the areas of alternative energy, electric cars, and space travel.

Using a select group of favored investors, including Tesla Board members Jurvetson,

Gracias, and Ehrenpreis, Musk has sought to build enterprises serving each of those

sectors. An essential aspect of this investing relationship is the low cost of capital

provided to Musk in light of his “visionary” status. Musk and these favored investors

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understand the link between the failure of any of Musk’s ventures and an increase in

the cost of capital for Musk’s other enterprises, which could very well stymie his

future endeavors in which they would expect to be included as early investors.

90. Each of the Company’s directors depend on Musk to indemnify them

against personal liability arising from their service on the Board of Tesla. In its Form

10-K for fiscal year 2019, Tesla disclosed that Tesla canceled its directors and

officers liability insurance policy for the 2019 to 2020 year due to

“disproportionately high premiums quoted by insurance companies.” Instead, Tesla

disclosed that Musk is personally providing coverage to Tesla’s directors and

officers. It is no stretch of logic to infer that the “disproportionately high premiums

quoted by insurance companies” were a result of Musk’s increasingly erratic

behavior and misconduct and the Board’s continuing failure to demonstrate any

ability to control him. Now, Musk controls whether the directors and officers of

Tesla are insured for, among other things, failing to oversee his misconduct, the

terms on which they settle any litigation, whether they settle any litigation, or

whether those directors and officers have to reach into their own pockets should they

be accused of any wrongdoing.

91. Musk also has served as the CEO, Chief Technology Officer, and

Chairman of the Board of Space Exploration Technologies Corporation (“SpaceX”)

since 2002. SpaceX is a private aerospace manufacturer and space transport services

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company founded by Musk to develop advanced rockets for satellite and human

transportation. Musk personally contributed $100 million in seed money to start

SpaceX, which is believed to be one of the most valuable privately held companies

in the world and was valued at an estimated $36 billion as of February 2020.

92. Elon Musk also served as Chairman of the Board of Directors for the

former SolarCity Corporation (“SolarCity”), a solar panel company, from its

founding in July 2006 until it was acquired by Tesla in November 2016. Musk is the

cousin of SolarCity’s co-founders, Lyndon Rive and Peter Rive, and at the time of

Tesla’s acquisition of SolarCity, Elon Musk owned approximately 21.9% of

SolarCity’s common stock, making him its largest stockholder. Through the

Company’s acquisition of SolarCity, Elon Musk personally received over half a

billion dollars’ worth of Tesla shares. In August 2018 — in the midst of the flurry

caused by Musk’s tweets — Musk received $65 million in repayments from Tesla

attributable to Musk’s SolarCity investments.

93. Musk also is a defendant in a derivative and class action litigation

against the Tesla Board concerning Tesla’s and Musk’s alleged bailout of Musk’s

failing solar energy company, SolarCity (the “SolarCity Action”). The plaintiffs in

that litigation allege that Musk controlled Tesla and the Board in a transaction that

made several of Tesla’s directors millions of dollars, but that those plaintiffs allege

harmed Tesla in the billions. According to Court filings in that case, the Board, other

- 29 -
than Musk, entered into a settlement of the claims against them for $60 million. The

trial against Musk is scheduled for July 2021.

94. By Musk’s own account, Tesla, SpaceX, and SolarCity are a

“pyramid” atop which he sits, and it is “important that there not be some sort of

house of cards that crumbles if one element of the pyramid of Tesla, SolarCity and

SpaceX falters.”

95. In 2009, Musk established a personal account on Twitter and began

using the personal account to communicate about Tesla’s business.

96. On November 5, 2013, Tesla filed a Form 8-K with the SEC stating that

it intended to use Musk’s personal Twitter account in addition to the Company’s

Twitter account as a means of announcing material information to the public about

Tesla and its products and services. In that Form 8-K, Tesla stated:

Tesla investors and others should note that we announce material

information to the public about our company, products and services and
other issues through a variety of means, including Tesla’s website,
press releases, SEC filings, blogs and social media, in order to achieve
broad, non-exclusionary distribution of information to the public. We
encourage our investors and others to review the information we make
public in the locations below as such information could be deemed to
be material information. Please note that this list may be updated from
time to time.

Interested in keeping up with Tesla?

For more information on Tesla and its products, please visit:

teslamotors.com

- 30 -
 For more information for Tesla investors, please visit:
ir.teslamotors.com

For the latest information from Tesla, including press releases and the
Tesla blog, please visit: teslamotors.com/press

For additional information, please follow Elon Musk’s and Tesla’s

Twitter accounts: twitter.com/elonmusk and twitter.com/TeslaMotors

97. At all times since November 2013, Musk has used his Twitter account

to publish material information about Tesla, including forward-looking guidance

regarding Tesla’s financial metrics and key non-financial information such as

production forecasts, production achievements, and new product releases.

98. Likewise, Tesla has continued to encourage investors to review the

information about Tesla published by Musk via his Twitter account. For example,

on November 7, 2016, Tesla filed a Form 425 referring to, and containing a

screenshot of, a tweet by Musk about how to vote on Tesla’s acquisition of

SolarCity. Tesla’s Chief Financial Officer (CFO) described Musk’s Twitter

statements as a “strong channel of marketing” with Musk acting as a “spokesman”

for Tesla.”

99. At all relevant times, Musk’s Twitter account was public, meaning that

anyone with access to the internet could view his Twitter publications (or “tweets”).

In addition, tens of millions of people follow Musk on Twitter, which results in

Musk’s tweets being automatically sent directly to those users.

- 31 -
 100. Through his Twitter account, Musk both publishes tweets himself and

also responds to tweets published by others. In neither circumstance does Musk or

Tesla ever announce or disclose any distinction between Musk’s personal tweets and

tweets being published as Tesla communications.

101. Prior to August 2018, Tesla purportedly had in place at least one policy

that governed Musk’s tweets and other social media communications.3

102.

103.

104.

3
The August 18, 2018 minutes of a Special Meeting of the Tesla Board, produced
pursuant to Section 220, states that at that time the Board discussed
However, it
is unclear whether have been produced in response to the 220
Demands. One “Social Media Policy” was produced, but it was undated.
- 32 -
 105.

B.

106. At 3:27 PM on August 2, 2018, Musk emailed Tesla’s Board, as well

as Todd Maron (Tesla’s then-General Counsel) and Deepak Ahuja (Tesla’s then-

CFO), with the subject line “Offer to Take Tesla Private at $420.” The email did not

state who made the offer but stated “Unless another bidder comes forward with a

better offer, I would ask that this matter be put to a shareholder vote at the earliest

opportunity. This offer expires in 30 days.”

107.

108. That evening, the Board of Directors held a special meeting—not

attended by Directors Musk, K. Musk, or Jurvetson —

- 33 -
 109. The following day, on August 3, 2018, the Board of Directors again

met, this time with Musk present. At the meeting,

110. Elon Musk has publicly displayed his animosity to those who were

short-selling Tesla stock. On May 2, 2018, Musk responded to analysts' questions

about Tesla's first-quarter earnings by responding "Boring, bonehead questions are

not cool, Next?" and "These questions are so dry. They're killing me."

111. On Twitter, Musk defended his answers by posting "two sell-side

analysts who were trying to justify their Tesla short thesis." On May 4, 2018, he

further tweeted the following: "Oh and uh short burn of the century comin [sic] soon.

- 34 -
Flamethrowers should arrive just in time." And immediately after, he posted "Looks

like sooner than expected. The sheer magnitude of short carnage will be unreal. If

you're short, I suggest tiptoeing quietly to the exit . . . ."

112. On May 7, 2018, Musk bought $9.85 million worth of Tesla shares to

force a burst of the short-covering, which caused Tesla's stock price to increase from

$297.50 to $302.77. Musk did this again on June 12, 2018 to maintain Tesla's stock

price while Tesla laid off 46,000 employees (roughly 9% of the workforce).

113. A few days later, Mr. Musk tweeted that "[the shorts] have about three

weeks before their short position explodes." By the end of July 2018, Tesla's short-

stock interest was 35 million shares (20% of outstanding stock). Many speculated

that the Go-Private Tweets were the fulfillment of Musk’s promised “short burn of

the century.”

114. However, at an August 3, 2018 meeting, the Board noted specifically

that

Tesla’s Board authorized Musk to

and asked

Musk

115. Within a few days, Musk flaunted the Board’s limited authorization,

- 35 -
with no reprimand from the Board.

C. Musk Issues the Go-Private Tweets in Violation of the Board’s

Directives

116. On August 7, 2018, at 12:48 p.m. EDT, Musk posted on his Twitter

account: “Am considering taking Tesla private at $420. Funding secured.” Musk

selected the price in a nod to marijuana culture to “amuse” his girlfriend.

117. Throughout the day, Musk continued to tweet about the going-private

plan without any oversight by the Board:

• At 1:15 p.m., Musk responded to a Twitter user’s question, “At

what price?” by repeating “420.”

• At 1:40 p.m., Musk tweeted, “I don’t have a controlling vote now

& wouldn’t expect any shareholder to have one if we go private.
I won’t be selling in either scenario.”

• At 2:00 p.m., Musk tweeted, “My hope is *all* current investors

remain with Tesla even if we’re private. Would create special
purpose fund enabling anyone to stay with Tesla. Already do this
with Fidelity’s SpaceX investment.” In response to this tweet
another Twitter user asked, “Could we still invest once private?”
Musk responded, “Yes, but liquidity events would be limited to
every 6 months or so (like SpaceX).”

• At 2:07 p.m., Musk responded to a Twitter user who wrote, “Or

if you do take Tesla private, please have a provision for retail
investors who have held Tesla shares prior to Dec 31, 2016 that
those shares will be converted into private shares in the new
private company. . . .” by tweeting, “Absolutely. Am super
appreciative of Tesla shareholders. Will ensure their prosperity
in any scenario.”

- 36 -
 • At 2:13 p.m., Musk tweeted, “Shareholders could either to [sic]
at 420 or hold shares & go private.”

• At 3:07 p.m., Musk responded to a Twitter user’s comment about

a “forced buyout” by tweeting, “Def. no forced sales. Hope all
shareholders remain. Will be way smoother & less disruptive as
a private company. Ends negative propaganda from shorts.”

• At 3:36 p.m., Musk tweeted a link to a blog post and stated,

“Investor support is confirmed. Only reason why this is not
certain is that it’s contingent on a shareholder vote.”

118. The texts in the two preceding paragraphs are referred to herein as the

“Go- Private Tweets.” The Go-Private Tweets caused a surge in Tesla’s stock price,

reaching an intraday high of $387.46 per share, before closing at $379.57 per share

August 7, 2018, a nearly 11 percent jump from the previous closing price. Trading

volume spiked to 30 million shares (compared to an average of 8 million),

representing over $11 billion of purchases in the open market. All the while, the

Go-Private Tweets flaunted the Board’s authorization, Company policy, regulatory

requirements, and the truth — all while leading to a flurry of speculative trading,

news reports, lawsuits and governmental inquiries.

119. Musk’s Go-Private tweets were highly material information from the

Company’s key insider and largest shareholder, and caused an immediate reaction

from analysts.

120. Musk’s tweets also caused severe market reaction since the Company’s

authorized representatives confirmed the tweets. Mr. Viecha (Tesla's Senior

- 37 -
Director of Investor Relations) immediately received three e-mails inquiring about

Mr. Musk's tweets. First, an analyst asked the following, "In the tweet, [Mr. Musk]

said financing is secured but in the letter he doesn't address this. Can you clarify?"

Mr. Viecha responded saying "I can only say that the first Tweet clearly stated that '

financing is secured .' Yes , there is a firm offer." Second, another analyst e-mailed

Mr. Viecha and another Tesla investor-relations member and asked "Had some

questions/clarifications on today's news and blog post. Can either of you speak?"

Mr. Viecha responded that "[A]part from what has been tweeted and what was

written in a blog post, we can't add anything else. I only want to stress that Elon's

first tweet, which mentioned ' financing secured ' is correct."

121. At the close of trading on August 8, 2018, Tesla's stock price dropped

2.5%—from $379.59 to $370.34 because contrary to what Musk had said on August

7, 2018, a press release from Tesla's Board said it was investigating the tweet, but

did not state that funding for a going-private transaction had been “secured.” On

August 9, 2018, Tesla's stock closed with a further drop from $370.34 to $352.45,

which reflected a 5% decline, due to the Wall Street Journal's publication of an SEC

investigation into the August 7, 2018 tweet.

122. Mr. Musk then tweeted the following on August 13, 2018: " I'm excited

to work with Silver Lake and Goldman Sachs as financial advisors , plus Wachtell,

Lipton, Rosen & Katz and Munger, Tolles & Olson as legal advisors, on the proposal

- 38 -
to take Tesla private."

123. On the same day, Bloomberg reported that neither Goldman Sachs nor

Silver Lake were yet working with Musk pursuant to a signed agreement or in an

official capacity. Similarly, the New York Times reported that Goldman Sachs and

Silver Lake were only in talks with Tesla, but there was nothing finalized.

124. Tesla's stock price rose following Mr. Musk's August 13, 2018

statement —from $356.41 to $361.13. But on August 14, 2018, Tesla's stock closed

at $347.64, which represented a 2.5% decline from $356.41 because of reports that

Defendants did not retain the financial advisors mentioned in Mr. Musk's Twitter

post.

125. On August 15, 2018, the Wall Street Journal reported that the SEC

formally subpoenaed Tesla regarding Mr. Musk's tweets. The same day, Tesla's

stock fell from $346.64 to $338.69, a 2.5% decline.

126. The New York Times published an article on August 17, 2018,

summarizing a recent interview with Mr. Musk. The article reported that, during the

interview, Mr. Musk revealed that no one reviewed his August 7, 2018 tweet before

he posted it, he chose the $420 price per share because of "better karma," and the

going-private transaction was far from secure because financing was not in fact

secured. At the close of trading on August 17, 2018, Tesla's stock price closed at

$305.50, which was a 9% fall from the previous day at $335.45.

- 39 -
 127. The Go-Private Tweets plainly flaunted the Board’s

128. The Go-Private Tweets also violated .

For example,

129. The Go-Private Tweets reportedly blindsided the Company’s other

senior executives, including CFO Ahuja, who had been present at the August 3, 2018

meeting where the Board

After the

Go-Private Tweets began, Ahuja sent a text to Musk: “Elon, am sure you have

thought about a broader communication on your rationale and structure to employees

and potential investors. Would it help if [Tesla’s head of communications], [Tesla’s

general counsel], and I draft a blog post or employee email for you?”4 Musk

4
SEC Action Complaint, ¶35 (filed Sept. 27, 2018) (bracketed text in original). At
the time, Tesla’s head of communications was Sarah O’Brien, who would leave the
Company just a month later; while Tesla’s general counsel was Todd Maron, who
would leave the Company by the end of the year.
- 40 -
responded “Yeah, that would be great.” A few hours later, Musk blogged to

employees that he was “considering taking Tesla private at a price of $420/share”

but that the “final decision has not yet been made.”5

130. The Go-Private Tweets also violated pertinent regulatory requirements.

For example, the Go-Private Tweets violated NASDAQ rules specifying that listed

companies must notify NASDAQ at least ten minutes prior to publicly releasing

material information. In fact, because Musk published the Go-Private Tweets in the

middle of the trading day, investors quickly inflated the price of Tesla shares to a

point where the NASDAQ halted trading for more than two hours.

131. The Go-Private Tweets also violated SEC requirements that

stockholders also be alerted to material news in other ways.6 George S. Canellos, the

SEC’s former acting enforcement chief, explained that the SEC rule provides that

social media is not an appropriate vehicle “if the access is restricted or if investors

don’t know that’s where they need to turn to get the latest news.”7 Yet Musk

5
Elon Musk, Taking Tesla Private, Tesla Blog, Aug. 7, 2018,
https://www.tesla.com/blog/taking-tesla-private.
6
See, e.g., David Michaels & Michael Rapoport, SEC Probes Tesla CEO Musk’s
Tweets, WAL. ST. J., Aug. 8, 2018, https://www.wsj.com/articles/sec-has- made-
inquiries-to-tesla-over-elon-musks-taking-private-tweet-1533757570.
7
Andrew Ross Sorkin, Elon Muskʼs Tweets on Tesla Started a Tizzy. Someone
Should Hit the Brakes, Aug 13, 2018, N.Y. TIMES DEALBOOK,
https://www.nytimes.com/2018/08/13/business/dealbook/elon-musk-tesla-
twitter.html.
- 41 -
repeatedly has blocked individuals from his Twitter account and did not issue a

broader release of his intentions to take the Company private through the SEC, while

Tesla did not itself file a Form 8-K with the SEC regarding Musk’s tweets and the

potential take-private transaction until August 14, 2018.

132. Further, in the days after the Go-Private Tweets, media outlets reported

the views of various respected legal analysts that the Go-Private Tweets violated the

anti-fraud and market manipulation provisions of the federal securities laws:

It is illegal for a director or officer of a public company “to knowingly

or recklessly make material misstatements about that company,” said
John Coates, a professor at Harvard Law School who teaches mergers
and acquisitions. Mr. Musk’s “tweets seem cryptic at best, and it is
hard to see how he has complied with his duty to not be misleadingly
incomplete.”

“That’s a clear factual statement,” said John C. Coffee Jr., a professor

at Columbia Law School who specializes in corporate law and
securities fraud. “If it’s not fully secure, that’s potentially a very
material misrepresentation, and a very straightforward violation of
Rule 10b-5” of the securities law – in short, securities fraud. Mr.
Musk’s “tweets seem cryptic at best, and it is hard to see how he has
complied with his duty to not be misleadingly incomplete.”

If there is evidence that the financing wasn’t fully locked down, Musk’s
claim would expose him to allegations of fraud, Coffee said.8

***

8
James B. Stewart, Did Elon Musk Violate Securities Laws With Tweet About Taking
Tesla Private?, N.Y. TIMES, Aug. 8, 2018, https://www.nytimes.com/2018/
08/08/business/elon-musk-tesla-sec.html.
- 42 -
 If his motive for the tweet “was frustration with short sellers, then that
could be a case of market manipulation,” John Coffee Jr., a Columbia
University law professor and corporate-governance expert.9

***

“As an officer of a public company that was a clearly a market-moving

event and he knew or should have known that,” said Laura Unger, a
former S.E.C. commissioner, said of Mr. Musk’s initial tweet. “He was
at least reckless whether he meant to drive up the price or not.”10

***

John Coffee, a securities and corporate law professor at Columbia

University, said the SEC can credibly argue that Mr. Musk’s tweet last
week, which caused Tesla’s stock price to jump 11% the day he posted
it, didn’t give shareholders the full picture they needed. . . .

“This is a clear statement that he has nothing more than an expression

of interest as opposed to a binding commitment,” Mr. Coffee said. “It
will tell the SEC that they have a virtually open-and-shut case if they
wish to sue.”11

“The probability that there will be an SEC enforcement action is, I

think, quite high,” said Joseph Grundfest, a law professor at Stanford
University and a former SEC commissioner.12

9
Christopher Rugaber, Tesla CEO Musk Taunts Short Sellers Amid Legal Scrutiny,
AP NEWS, Aug. 11, 2018, https://www.apnews.com/
a8b14ee7114b499bbb288d19d6ca2090.
10
Jessica Silver-Greenberg et al., Tesla Board Surprised by Elon Musk’s Tweet on
Taking Carmaker Private, N.Y. TIMES DEALBOOK, Aug. 13, 2018,
https://www.nytimes.com/2018/08/13/business/dealbook/tesla-elon-musk-saudi-
arabia.html.
11
Dave Michaels & Michael Rapoport, Musk’s Tweets on Tesla Buyout Face
Scrutiny After Saudi Disclosure, WALL ST. J., Aug. 14, 2018,
https://www.wsj.com/articles/musks-tweets-on-tesla-buyout-face-scrutiny-after-
saudi-disclosure-1534244400.
12
Id.
- 43 -
 133. Indeed, as the market later learned, SEC investigators unsurprisingly

began questioning Tesla and Musk the very next day after the Go-Private tweets,

and formally served subpoenas on the Board and Musk.13

134. Finally, the Go-Private Tweets were false and misleading. As later

admitted by Tesla, neither Musk nor Tesla had actually lined up the necessary

financing. In addition, Musk had only engaged in preliminary conversations with

some investors, which did not address “even the most fundamental terms of a

proposed going-private transaction,” such as price, premium, and ownership

percentage. 14

135. Further, Musk stated in an interview with the SEC that in fact the $420

per share offer was based on a 20% premium, which resulted in a price of $419 per

share. Musk told the SEC he rounded the price up to $420 because he had learned

about the number’s significance in marijuana culture and thought his girlfriend

“would find it funny, which admittedly is not a great reason to pick a price.”15

136. According to the SEC:

Musk’s statements that funding was “secured” and investor support was
“confirmed” were false and misleading because, in reality, Musk had
no “secured” or “confirmed” commitment from any source to provide

13
The Wall Street Journal, “SEC Sends Subpoena to Tesla in Probe Over Musk
Tweets,” Aug, 15, 2018.
14
SEC Action Compl. ¶21.
15
Id. at ¶24.
- 44 -
 any amount of funding. In addition, he had never even discussed taking
Tesla private at a price of $420 per share with the Fund or any other
potential investor.

***

Musk’s statements were premised on a long series of baseless

assumptions and were contrary to facts that Musk knew.

***

Unlike market participants reading his tweets, Musk knew that his
ostensibly “secured” funding was based on a 30 to 45 minute
conversation regarding a potential investment of an unspecified amount
in the context of an undefined transaction structure. Musk also knew
that there were many uncertainties beyond just a shareholder vote that
would have had to be resolved before any going-private transaction
could have been possible. As a result, Musk knew or was reckless in
not knowing that his August 7 statements were false and misleading.16

D. The Board Fails to Exercise Effective Oversight of Musk in the

Face of Musk’s Unlawful Go-Private Tweets

137. As alleged supra, in connection with the Go-Private Tweets, Musk

consciously disregarded the Board, the Company’s policies, regulatory

requirements, and the truth. Yet Tesla’s Board failed to place any controls on

Musk’s continuing use of social media in disseminating public information — nor

did the Board take steps to correct or to clarify the public information Musk had

disseminated. In fact, in an interview published on August 16, 2018, Musk said that

Board members had not complained to him about his tweet — “I don’t recall getting

16
Id. ¶¶62, 69, 71.
- 45 -
any communications from the board at all. I definitely did not get calls from irate

directors.”

138. At 4:30 PM on August 7, 2018 — the day the Go-Private Tweets were

made — the Board (other than Musk, K. Musk, or Jurvetson)

139.

Indeed,

in an e-mail produced in connection with the Section 220 Demands,

140. Tesla’s Board held another Special Meeting nearly a week later, on

August 13, 2018, which Musk attended.

— even though, that same day, August 13, 2018, Musk

again took to Twitter to falsely announce that he was “excited to work with Silver

Lake and Goldman Sachs’ as financial advisers on his proposal to privatize Tesla.”

- 46 -
In fact, neither of these entities had signed on as financial advisors to Musk.

141. Still, at another Special Meeting held three days later, on August 16,

2018,

. Instead, the Board

142. is all the more alarming in light

of what The New York Times interview revealed when it was published. The article,

entitled “Elon Musk Details ‘Excruciating’ Personal Toll of Tesla Turmoil,”

described Musk as “alternat[ing] between laughter and tears” as he discussed the

stress that he had been under, his use of Ambien, and the manner in which the Go-

Private Tweets had been conceived. Musk confirmed that “no one saw or reviewed

his tweet about the plan to take the electric-car maker private before he posted it,”

and that he typed the initial Go-Private Tweet as he was driving himself to an

airport. The interview also revealed that, as The New York Times summarized

elsewhere, that Musk had “taken to Twitter impulsively” and “because he was not

- 47 -
the kind of person who could hold things in, and was angry at the company’s

critics.”

143. The New York Times also reported that some members of Tesla’s Board

were “blindsided” by the Go-Private tweets, and that “some board members have

expressed concern” about Musk, including “his use of ambien.” Nonetheless, despite

even Musk’s own troubling admissions about his headspace and behavior, the

minutes of another Special Meeting of the Board on the day after the interview was

published, August 17, 2018,

144. Finally, at another Special Meeting the following day, on August 18,

2018, the Board discussed the

Yet, the Board

Instead, the Board

simply

E. Musk Derails SEC Settlement Efforts with the Acquiescence of

Tesla’s Board

145. On August 24, 2018, Musk changed course and announced that Tesla

- 48 -
would stay public.17

146. The following day,

Despite Musk’s erratic behavior and concerning interview with The New

York Times a few days prior,

147. Yet, even if Tesla was no longer considering going private, the SEC

was still investigating the Go-Private Tweets — which made it all the more

egregious that Musk continued his reckless social media communications. For

example, on September 6, 2018, Musk participated in a live video podcast hosted by

Joe Rogan, during which he smoked marijuana and drank whiskey (the “Rogan

Podcast”).

17
Elon Musk, Staying Public, Tesla Blog, Aug. 24, 2018,
https://www.tesla.com/blog/staying-public.
- 49 -
 148. At a special meeting of Tesla’s Board on September 10, 2018, the

Board discussed

149.

150. However, Musk threatened to “resign on the spot” if the Board accepted

the settlement offer and also “demanded the board publicly extol his integrity.”18

The Board caved to Musk’s demands. Tesla’s stock price fell 14% following

18
James B. Stewart, Elon Musk’s Ultimatum to Tesla: Fight the S.E.C., or I Quit,
N.Y. TIMES, Oct. 2, 2018, https://www.nytimes.com/2018/10/02/business/tesla-
elon-musk-sec.html
- 50 -
disclosure of Tesla’s refusal to settle. Jeffrey Sonnenfeld, a professor at the Yale

School of Management, characterized as the decision of the Board as “drinking the

Kool-Aid of the founder,” and noting the decision to pull out of the settlement “is

completely as self-destructive as Musk is.”19

151. On September 27, 2018, the SEC initiated the SEC Action by filing a

complaint charging Musk with securities fraud. In addition to financial damages, the

SEC Action sought to bar Musk from serving as an executive or director of any

public company. The lawsuit did not name Tesla as a defendant.

152. In its complaint, the SEC alleged that for at least five years, Tesla failed

to maintain disclosure controls and procedures concerning Musk’s dissemination of

information concerning Tesla.

153. On September 29, 2018, the SEC announced that it had entered into a

settlement agreement with Musk to resolve the lawsuit filed two days earlier. The

SEC also filed the Tesla SEC Action, charging Tesla with failing to have sufficient

internal controls, and settled that action as well.

154. Among other things, the SEC Settlements required that:

• Musk “comply with all mandatory procedures implemented by

Tesla… regarding (i) the oversight of communications relating
to the Company made in any format, including, but not limited
to, posts on social media (e.g., Twitter)… and (ii) the pre-
approval of any such written communications that contain, or
19
https://www.nytimes.com/2018/10/02/business/tesla-elon-musk-sec.html.
- 51 -
 reasonably could contain, information material to the Company
or its shareholders”;

• Musk step down as Tesla’s Chairman and be replaced by an

independent Chairman. Musk will be ineligible to be re-elected
Chairman for three years;

• Tesla appoint a total of two new independent directors to its

board;

• Tesla establish a new committee of independent directors and put

in place additional controls and procedures to oversee Musk’s
communications; and

• Musk and Tesla each pay a $20 million penalty. The combined
$40 million in penalties will be distributed to harmed investors
under a court-approved process.

155. Thus, because the Board gave in to Musk’s threats and did not settle

with the SEC just a few days earlier, Musk was forced to pay double the initial fine

offered and the Company was charged by the SEC and forced to pay a $20 million

penalty.

F. The Board Creates the Appearance of Compliance with the SEC

Settlement, While at the Same Time Facilitating Musk’s Ongoing
Violations of the Restrictions

156. Tesla’s settlement with the SEC imposed a heightened duty on the

Board to ensure compliance with the terms of the settlement and to exercise

increased oversight of Musk, who the Board knew was engaging in unlawful conduct

that put the Company at a materially increased risk of harm. The Board failed to

fulfill its duties, however, since Musk’s conduct continued unabated.

- 52 -
 157. On October 1, 2018, Musk tweeted a link to the video for the song

“O.P.P.” and captioned the video “Naughty by Nature” with a winking emoji.20

Then, on October 4, 2018, Musk openly mocked the SEC by tweeting:

158. Tesla’s Board called a special meeting the next day, at which

159. On October 16, 2018, the District Court overseeing the SEC Action and

the Tesla SEC Action entered the terms of the SEC Settlements as part of final

judgments (the “Final Judgments”) (attached hereto as Exhibits A and B and

incorporated herein by reference).

160. Just ten days later, on October 26, 2018, Musk said on Twitter that the

20
The Wall Street Journal, “Elon Musk Stirs Controversy on Twitter in Wake of
SEC Settlement,” Oct. 1, 2018.
- 53 -
$20 million fine was “worth it.”

161. On November 7, 2018, as required by the SEC Settlement, Musk

relinquished his position as Chairman of the Tesla Board. The position was filled

instead by Denholm.

162. During a 60 Minutes interview a month later, Musk revealed that

Denholm as mere window-dressing, stating:

Lesley Stahl: Did you handpick her?

Elon Musk: Yes.

Lesley Stahl: The impression was that she was put in to kind of
watch over you.

Elon Musk: Yeah, I mean that’s not realistic. I mean I’m the largest —

Lesley Stahl: Like a babysitter —

Elon Musk: Yeah. It — it’s not realistic in the sense that I am the
largest shareholder in the company. And I can just call for a
shareholder vote and get anything done that I want.

163. During that 60 Minutes interview, Musk also revealed that — in

violation of the SEC Settlements — Tesla was not taking seriously its duty to

monitor his social media posting, and that Musk himself had no respect for the SEC:

Lesley Stahl: Have you had any of your tweets censored since the
settlement?

Elon Musk: No.

- 54 -
 Lesley Stahl: None? Does someone have to read them before they
go out?

Elon Musk: No.

Lesley Stahl: So your tweets are not supervised?

Elon Musk: The only tweets that would have to be say reviewed would
be if a tweet had a probability of causing a movement in the stock.

Lesley Stahl: And that’s it?

Elon Musk: Yeah, I mean otherwise it’s, “Hello, First Amendment.”

Like Freedom of Speech is fundamental.

Lesley Stahl: But how do they know if it’s going to move the market
if they’re not reading all of them before you send them?

Elon Musk: Well, I guess we might make some mistakes. Who knows?

Lesley Stahl: Are you serious?

Elon Musk: Nobody’s perfect.

Lesley Stahl: Look at you.

Elon Musk: I want to be clear. I do not respect the SEC. I do not respect
them.

164. Shortly after Musk revealed his and Tesla’s noncompliance with the

SEC Settlements, on December 11, 2018, Tesla purportedly adopted a “Senior

Executives Communications Policy.” The Senior Executives Communications

Policy states:

Written Communications that contain, or reasonably could contain,

information material to Tesla or its stockholders must, prior to posting

- 55 -
 or other publication, be submitted to Tesla’s General Counsel and
Disclosure Counsel (or in the event of the General Counsel’s
unavailability, Tesla’s Chief Financial Officer and Disclosure Counsel)
for pre‐approval Authorized Executives are not authorized to post or
publish Written Communications that contain, or reasonably could
contain, information material to Tesla or its stockholders without
obtaining pre‐approval.21

165. Musk qualifies as an “Authorized Executive” under the Senior

Executives Communications Policy, which is defined as “Tesla’s Chief Executive

Officer (“CEO”), Head of Communications (who shall receive appropriate guidance

from the General Counsel), and any Tesla Vice President or higher employee

designated in writing by the CEO.” The Senior Executives Communications Policy

also provides a non-exclusive list of examples of information that may be “material

to Tesla or its stockholders,” which includes “projections, forecasts, or estimates

regarding Tesla’s business.” Further, the Senior Executives Communications Policy

also requires that:

[i]f an Authorized Executive (i) further edits a pre‐approved Written

Communication, or (ii) desires to release a Written Communication
more than two (2) days, after receipt of written pre‐approval, such
Authorized Executive will re‐confirm the pre‐approval in writing in
accordance with this Policy prior to release.

166. On December 28, 2018, Tesla announced that — also pursuant to the

SEC Settlement — it had elected Ellison and Wilson-Thompson to its Board. In the

21
SEC Action, ECF No. 18-1.
- 56 -
same announcement, Tesla stated that it “intend[ed] to certify to the [SEC] that it

and Elon have timely completed each of their respective actions required pursuant

to the Settlement.”

167. Yet Tesla did not disclose what the Board knew

This undisclosed fact seriously called into question

G. In 2019, Musk Continues to Intentionally Disregard Company

Policies and the SEC Settlements
168. As 2019 began, Williams & Connolly chair Dane Butswinkas — who

Bloomberg described as a “power lawyer” — replaced Moran as Tesla’s new

General Counsel. In a December 2018 press release announcing the hiring,

Butswinkas stated that he was personally motivated by Tesla’s mission to join the

Company: “I would have never imagined joining a company in-house. But Tesla

presents a unique and inspiring opportunity. Tesla’s mission is bigger than Tesla —

one that is critical to the future of our planet. It’s hard to identify a mission more

timely, more essential, or more worth fighting for.”

169. Yet, even with a new Board Chairperson, two new Directors, and a new

General Counsel, Musk could not be controlled.

170. On February 19, 2019, at 7:15 p.m. Musk once again took to his Twitter

account to announce: “Tesla made 0 cars in 2011, but will make around 500k in
- 57 -
2019.” This information was incorrect. Four hours later Musk tweeted: “Meant to

say annualized production rate at end of 2019 probably around 500k, i.e 10k

cars/week. Deliveries for year still estimated to be about 400k.”

171. Statements regarding the Company’s production milestones are clearly

material to Tesla shareholders as it addresses “projections, forecasts, or estimates

regarding Tesla’s business” and thus triggers the pre-approval requirements imposed

Senior Executives Communications Policy and the SEC Settlement.

172. On February 20, 2019, SEC staff asked Musk and Tesla to confirm

whether Musk had complied with Tesla’s pre-approval procedures as required by

the SEC Settlement. That same day, the Company’s brand new General Counsel

Butswinkas announced he was leaving the Company — just months after declaring

that Tesla’s mission was “critical to the future of our planet. It’s hard to identify a

mission more timely, more essential, or more worth fighting for.”

173. On resigning as General Counsel, Butswinkas told The Wall Street

Journal that his firm, Williams & Connelly, would continue to represent Tesla. But

just three days after the Motion for an Order to Show Cause was filed, on February

28, 2019, Williams & Connelly moved to withdraw as counsel for Musk in the SEC

Action.

174. On February 22, 2019, in correspondence on behalf of both Musk and

Tesla, counsel for Tesla confirmed that Musk’s 7:15 tweet had not been pre-

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approved, as required by the Policy. Only after Tesla’s “Designated Securities

Counsel” saw the initial tweet did that counsel meet with Musk to draft the correction

together.22

175. On February 25, 2019 the SEC filed a Motion to for an Order to Show

Cause in the SEC Action, seeking to hold Musk in contempt for violating the SEC

Settlement (attached hereto with all exhibits as Exhibit C and incorporated herein by

reference) (the “Contempt Motion”).

176. The Contempt Motion alleged that:

On February 20, 2019, SEC staff asked Musk and Tesla to confirm
whether Musk had complied with Tesla’s pre-approval procedures as
required by the Court’s Final Judgment before he published the 7:15
and 11:41 tweets. On February 22, 2019, in correspondence on behalf
of both Musk and Tesla, counsel confirmed that Musk’s 7:15 tweet had
not been pre-approved, as required by Tesla’s Policy and the Court’s
Final Judgment. According to counsel, immediately upon seeing
Musk’s 7:15 tweet for the first time after Musk had published it, Tesla’s
“Designated Securities Counsel” arranged to meet with Musk, and they
drafted Musk’s corrective 11:41 tweet together. Id. The first sentence
of the 11:41 tweet acknowledged that Musk’s 7:15 tweet was not
accurate: “Meant to say annualized production rate at end of 2019
probably around 500k, i.e 10k cars/week.”

Ex. C at 5-6 (internal citations omitted). The Contempt Motion also alleged that

Musk and Tesla also “acknowledged that they ‘are cognizant of the applicable

policies and procedures mandated by the Final Judgments where a written

22
SEC Action, ECF No. 18-4 at 3.
- 59 -
communication contains, or reasonably could contain, material information.’” Ex.

C at 6 & Ex. C-4, at 3.

177. That same day, Musk responded by mocking the SEC, tweeting in

response to a story about the SEC’s motion: “SEC forgot to read Tesla earnings

transcript, which clearly states 350k to 500k. How embarrassing … @”

178. The following day, February 26, 2019, the Court overseeing the SEC

Action ordered to respond to the SEC’s motion by March 11, 2019.

179. Once again, and even after the SEC had filed for an Order to Show

Cause, Musk publicly insulted the SEC:

180. Early the next on February 27, 2019, Musk issued a series of cryptic

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tweets: “Thursday 2pm”; “California”; “Some Tesla news,” creating further

confusion by changing his Twitter handle to “@ElonTusk.” Musk’s mysterious

announcements fueled rabid speculation and drove Tesla’s stock price up about 6%.

181. Ultimately, Musk’s attempt to build hype may have backfired: the

“Tesla news,” it turned out, was an announcement of a cheaper Model 3 that Tesla

told its stockholders it would release in the next few weeks — alongside news that

Tesla would not be profitable in the first quarter. Investors were deflated, undoing

the speculative gains before and then some, driving the stock price down more than

3% by the close of the following day. One analyst noted that “Given its seeming

abruptness, it does not appear that [the] announcement was made from a position of

strength[.]” That announcement and Tesla’s web site indicated that if someone

wished to purchase a $35,000 Model 3, they would receive it “quickly” and Tesla’s

order page was updated to reflect that new $35,000 Model 3 orders would be

delivered within two to four weeks of orders.

182. Following the February 28 announcement, Tesla held an unannounced

conference call that was not made public either prior to, or after, the call with

selected analysts and press, during which a Tesla investor relations person stated

“please do not publish the recording or transcripts of this call.” During the call,

Musk spoke on behalf of Tesla, refusing to discuss the $35,000 Model 3 profit

margins despite several questions from analysts and reporters on this point and

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divulged details about Tesla’s plans for significant reductions in force and material

information concerning delivery guidance for the $35,000 Model 3 — specifically

that new orders would not be delivered until “let’s say June,” directly contradicting

Tesla’s earlier guidance. Tesla itself has not issued a Form 8-K with a transcript of

that call, despite a Tesla spokesperson advising a reporter from the L.A. Times to

“refer to what Elon said on the call” for material information explaining the

difference between the Tesla web site delivery estimate and the conference call

guidance.

183. Following the February 28, 2019 unannounced and unpublished

conference call, on March 1, 2019, Deutsche Bank reportedly published non-public

details concerning Tesla’s profit margins on the $35,000 Model 3. Deutsche Bank

analyst Emmanuel Rosner published a report for Deutsche Bank’s clients called “SR

M3 Likely Addresses Issues; Questions Now Back To Margin.” In this report,

Deutsche Bank reportedly wrote:

In our follow-ups with the company, management outlined a high level

bridge to maintaining profitability which includes savings from higher
fixed cost absorption Tesla indicated that initially, the $35k Model
3 will generate a positive cash gross margin (gross profit plus
depreciation of approximately $1,500). . . .

184. The Contempt Motion resulted in a revised settlement agreement,

entered by the Court on April 30, 2019, pursuant to which Tesla again revised its

Senior Executives Communications Policy (the “Revised Settlement”).

- 62 -
 185. Among other things, the Revised Policy required that Musk get written

pre-approval from Tesla’s “Disclosure Counsel” prior to posting or publishing any

information that contains “Specified Information,” which the Revised Policy defines

as:

• the Company's financial condition, statements or results,

including earnings or guidance;

• potential or proposed mergers, acquisitions, dispositions, tender

offers, or joint ventures;

• production numbers or sales or delivery numbers (whether

actual, forecasted, or projected) that have not been previously
published via pre-approved written communications issued by
the Company ("Official Company Guidance") or deviate from
previously published Official Company Guidance;

• new or proposed business lines that are unrelated to then-existing

business lines (presently includes vehicles, transportation, and
sustainable energy products);

• projection, forecast, or estimate numbers regarding the

Company's business that have not been previously published in
Official Company Guidance or deviate from previously
published Official Company Guidance;

• events regarding Tesla's securities (including the CEO's

acquisition or disposition of the Company's securities), credit
facilities, or financing or lending arrangements;

• nonpublic legal or regulatory findings or decisions;

• any event requiring the filing of a Form 8-K by Tesla with the
Securities and Exchange Commission, including:

o a change in control; or
- 63 -
 • a change in the Company's directors; any principal executive
officer, president, principal financial officer, principal
accounting officer, principal operating officer, or any person
performing similar functions, or any named executive officer; or

• such other topics as the Company or the majority of the

independent members of its Board of Directors may request, if it
or they believe pre- approval of communications regarding such
additional topics would protect the interests of the Company's
shareholders.

186. The Policy further provides that once any communication under the

policy has been preapproved, such communications should be disseminated outside

of NASDAQ trading hours which the Policy states is intended to allow all investors

equal, unhurried access to information.

187. Despite the fact that the Revised Policy explicitly prohibits Musk from

tweeting about production numbers and forecasted guidance without following the

procedures set forth therein, on July 29, 2019 Musk tweeted previously undisclosed

guidance about Tesla’s purported ramp up of solar roof production, stating that the

Tesla would produce 1,000 solar roofs per week by the end of 2019.

188. Expected production numbers for the solar roof previously had not been

disclosed by Tesla. Indeed, Tesla did not mention the solar roof product at all in its

Second Quarter 2019 Update letter to stockholders or provide any guidance

regarding solar roof production during its earnings call a mere five days prior, though

the Company did disclose disappointing results for deployments in its retrofit solar
- 64 -
business during the second quarter. Musk’s Guidance Tweet unquestionably was

covered by the Policy. Tesla declined to respond to reporters’ inquiries into whether

the tweet was pre-approved in accordance with the Revised Policy. Because only 56

minutes passed between when Mr. McCaffrey sent his tweet to Musk and when

Musk responded to the tweet, and because Tesla did not issue this guidance during

its earnings call that took place a mere five days prior, there is ample basis to infer

that the Guidance Tweet was published in violation of Tesla’s policies and the SEC

Settlement.

189. The documents Tesla produced in response to Plaintiff Gharrity’s

Section 220 Demand confirmed that the tweet was not pre-approved

190.

- 65 -
191. On August 7, 2019 Tesla

192.

193.

194.

- 66 -
 195. Moreover, the documents produced in response to Plaintiff Gharrity’s

Section 220 Demand reveal

Tesla acknowledges that K. Musk is not

independent, among other reasons, because he is Elon Musk’s brother. He is not a

member of the Audit Committee or the Disclosures Controls Committee.

196. Because the Board has done nothing to ensure compliance with the SEC

Judgments, E. Musk’s unlawful conduct has continued unabated, with Musk openly

flaunting any concern about violating the Judgment. As Musk admitted to Lesley

Stahl on the 60 Minutes interview, “Well, I guess we might make some mistakes.

Who knows?” and “I want to be clear. I do not respect the SEC. I do not respect

them.”

- 67 -
 197. The Tesla Board, possessed with actual knowledge of the harm to the

Company from Musk’s past conduct, and his public defiance of the SEC even after

entry of the Judgment, had a heightened duty to prevent unlawful conduct by Musk

in order to protect Tesla and its shareholders.

H.

198. More than a year after the Amended Judgment in the SEC action was

entered on April 30, 2019, Musk issued a tweet at 11:11 a.m EST on May 1, 2020

(the “11:11 tweet”) that stated “Tesla stock is too high IMO.” In response to this

Tweet,

199. On May 3, 2020, Tesla’s Disclosure Controls Committee met, with

Denholm (Chair), Jurvetson, Murdoch, and Wilson-Thompson participating. The

Committee discussed .

The minutes of the meeting indicate that

- 68 -
200. Three days later, on May 4, 2020, Tesla

201. On May 8, 2020,

202.

- 69 -
 The letter stated that

203. These facts demonstrate the Board’s repeated breaches of their duties

of loyalty and good faith. The Board was aware of and had approved the judgment

and amended judgment with the SEC, and had actual knowledge of the steps that

Tesla was required to take in order to comply with the judgments. The Board has

repeatedly failed to do so by, among other things,

204. Musk’s May 1, 2020 Valuation Tweet destroyed almost $14 billion in

Tesla’s market capitalization, causing Tesla’s stock price to decrease from $761.31

to $686.93, or 9.7% in the hours after the tweet.

205. The Valuation Tweet was only one in a series of erratic tweets on this

date from the same Twitter account. Musk’s other tweets included lyrics from the

Star Spangled Banner, a tweet that his girlfriend Grimes was mad at him, and several

tweets that he was going to sell all of his material possessions, interspersed with

- 70 -
tweets about his other company, SpaceX.

I. The Board Has Breached Its Duties of Good Faith and Loyalty by
Failing to Appoint an Independent General Counsel and Prevent
Musk From Interfering With the General Counsel’s Duties

206. Tesla’s general counsel directs the company’s legal and policy teams

around the world and reports directly to Musk. It is a key position at the company

that was once held by Todd Maron, who joined Tesla in 2013 after working as

Musk’s divorce lawyer. Maron, a confidante of Musk’s, became general counsel at

Tesla in 2014.

207. Musk has always sought to appoint a General Counsel that would

protect his interests first and those of Tesla second. In 2019, Tesla lost three general

counsels in one year because the lawyers were either too close to Musk or felt they

could not do their job due to interference from Musk.

208. In January 2019, Maron resigned. It was announced that Dane

Butswinkas, the Washington-based trial lawyer and chairman of Williams &

Connolly, would become the next general counsel to Tesla Inc., arriving as the

company attempted to climb out of a period of intense regulatory scrutiny.

209. While Butswinkas was viewed as competent and independent, he

quickly learned that Musk ran the show and experienced what he later referred to,

when he resigned after less than two months on the job, as “culture clash.”

210. But Butswinkas’ departure was the result of far more than just a

- 71 -
“culture clash.” Butswinkas resigned in an extraordinarily hasty fashion, especially

for a publicly-traded company’s general counsel. The timing was no coincidence.

Butswinkas resigned one day after Musk published the February 19, 2019 tweet

(“Tesla made 0 cars in 2011, but will make around 500k in 2019”) that caused the

SEC to sue him and Tesla for contempt of the SEC Judgment within a week of

Musk’s issuance of the tweet.

211. Since Musk admitted the very next day that his tweet was not accurate,

and Butswinkas resigned that very day, the implications are very clear that

Butswinkas had not been able to curtail Musk’s conduct in violation of the Judgment.

In fact, the gravity of the harm to Tesla on February 20, 2019 must have been

palpable for Butswinkas, who resigned “effective immediately.” Presumably

Butswinkas did not want to be implicated in any contempt proceeding. “I don’t think

it’s a coincidence that the general counsel is leaving after a tweet that appears to

violate the agreement,” said Rebecca Lindland, executive editor of

RebeccaDrives.com, an auto-industry and car review website. “It calls into question

the oversight of the board and the adherence to the S.E.C. settlement.”

212. But more broadly, these facts shine a light on the Board’s failure to

implement effective oversight of Musk. The General Counsel role is critical to

ensure adequate consideration of the best interests of Tesla. But Musk has always

filled that role with someone whose first fealty was to him, not Tesla. Butswinkas’

- 72 -
appointment was perhaps a feeble attempt to break that pattern, but it didn’t work;

Butswinkas lasted a mere two months.

213. When Butswinkas resigned, Musk predictably filled the role with a

long-time insider with loyalty to him. Jonathan Chang, who had worked with Tesla

as an employee and outside counsel for more than a decade, was named to replace

Butswinkas. Chang had first begun working with Tesla in 2006 at Latham &

Watkins. He joined Tesla in 2011 following Tesla’s IPO, and had been named vice

president of legal in 2017.

214. Chang also had a very short tenure as general counsel. On December

12, 2009, it was reported that Chang was resigning as Tesla’s General Counsel in an

article entitled “Tesla Loses Its Third General Counsel in a Year.”23 The article

noted that “With Chang’s departure, Tesla has now lost three general counsels in the

past year. Tesla’s general counsel Todd Maron left the company in December 2018.

Maron’s successor, Dane Butswinkas, left the company in February 2019 after just

two months on the job because he was not a good cultural fit, a source familiar with

the situation told CNBC at the time.”

215. The fact that Tesla lost three general counsel’s in one year reflects the

fact that none of them were able to exercise any advice on matters that differed from

23
See Annie Palmer, “Tesla Loses Its Third General Counsel in a Year,” CNBC,
Dec. 12, 2019.
- 73 -
Musk’s desired outcome. The Board was well aware of the need for Tesla to have a

General Counsel who could provide advice as to what was in Tesla’s best interests.

It was also well aware that Musk was interfering with the General Counsel and

dictating Tesla’s positions on issues, including with respect to compliance with the

SEC’s Judgment. The Board has failed to take necessary action to ensure that Tesla

has an independent General Counsel and to ensure that Musk does not improperly

interfere with the General Counsel’s job of representing the best interests of Tesla,

thus breaching its duty of loyalty.

216. As an example, in its letter to Tesla regarding

- 74 -
 TESLA HAS INCURRED SIGNIFICANT MONETARY DAMAGES

217. Tesla has suffered significant monetary damages because of the

conduct alleged herein. Not only has Tesla been forced to pay a $20 million fine, it

has had to pay to defend against the SEC Actions, securities class actions, and

investigations related to the conduct described herein due to both Musk’s actions

and the inaction of the Board, causing substantial financial harm to Tesla.

218. On April 15, 2020, Judge Chen denied the motion to dismiss brought

by defendants in the related securities fraud class action complaint, exposing Tesla

to significant damages. See 477 F. Supp. 3d 903 (N.D. Cal. Apr. 15, 2020).

Defendants E. Musk, Brad W. Buss, Robyn Denholm, Ira Ehrenpreis, Antonio J.

Gracias, James Murdoch, Kimbal Musk, and Linda Johnson Rice are defendants in

that case, and thus face a substantial likelihood of liability in such case, impairing

their independence and objectivity in this case.

219. Additionally, the value of Tesla has substantially depleted as a result of

the misconduct and inaction alleged herein. Whereas Tesla stock traded intraday at

$342.52 just prior to the August 7 “funding secured” tweet by Musk, by the time

Musk ultimately admitted after the close of the market on August 24, 2018 that he

would not pursue a going-private transaction, the Company’s stock price closed the

next trading day, August 27, 2018, at $319.27 per share. The result of this price drop

- 75 -
was that Tesla’s total market capitalization fell by approximately $3.96 billion,

hurting the Company and its stockholders.

220. Further, whereas Tesla stock price closed at $305.64 per share prior to

the post-market-close false and misleading deliveries estimate tweet by Musk on

February 19, 2019, after Musk admitted his false statement, the next trading day,

February 20, 2019, the Company’s stock price closed at $302.56 per share. The

result of this price drop was that Tesla’s total market capitalization fell

approximately $500 million, hurting the Company and its stockholders.

221. As Musk’s escalating recklessness continued and culminated in his

making of the Valuation Tweet stating that Tesla was overvalued, Tesla’s market

capitalization dropped by almost $14 billion in mere hours.

222. On top of the substantial costs to Tesla arising from the misconduct that

are summarized above, the misconduct and surrounding fallout imposed heavy

downward pressure on Tesla’s stock price at a time when the Company would soon

need to spend cash to redeem convertible bonds if the stock price dropped too low.

223. Specifically, Tesla had $920 million in convertible bonds that came due

in March 2019 with a conversion price of $359.87. If Tesla’s stock was trading at

less than $359.87 per share, it would have had to spend cash to redeem the bonds. In

the aftermath of the Go-Private Tweets and as a result of the misconduct alleged

herein, Tesla’s stock was trading well below the strike price for the convertible

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bonds. Indeed, commentators observed that “Elon Musk’s latest twitter meltdown

almost assures Tesla’s $920M bond will be paid in all cash.” On March 1, 2019,

commentators’ predictions proved correct, and Tesla was forced to deplete its cash

reserves to pay off the $920 million convertible bonds in cash.

224. Tesla has incurred, and will continue to incur, substantial costs in

connection with the misconduct described herein, including without limitation

increased financing costs and costs resulting from investigations, fines, attorneys’

fees and expenses, advancement, and reputational harm. The SEC Settlements did

not end the lawsuits and government investigations resulting from the misconduct,

which continue to expose the Company to harm, and which in turn Musk’s continued

recklessness dramatically increases the Company’s exposure.

225. On September 18, 2018, it was reported that the DOJ had opened a

preliminary instigation into Musk’s tweets.24 In addition, the FBI has launched a

criminal investigation into whether Tesla misstated information about the production

of the Model 3 sedans (the “Model 3 Investigation”). In February 2017, during an

investor conference call, Musk claimed he was pushing suppliers to “to be ready for

24
Matthew Goldstein et al., Justice Department Is Examining Tesla After Musk
Comment, N.Y. TIMES, Sept. 18, 2018, https://www.nytimes.com/
2018/09/18/business/tesla-elon-musk-justice-department.html; Tom Schoenberg
& Matt Robinson, Tesla Is Facing U.S. Criminal Probe Over Elon Musk
Statement, BLOOMBERG, Sept. 18, 2018,
https://www.bloomberg.com/news/articles/2018-09- 18/tesla-is-said-to-face-u-s-
criminal-probe-over-musk-statements.
- 77 -
a weekly run rate of 1,000 vehicles in July to 2,000 in August and 4,000 in

September.” On July 2, 2017, Musk tweeted: “Looks like we can reach 20,000

Model 3 cars per month in Dec.” However, as of September 2017, Tesla’s body

shop was not even fully functional. Tesla did not come close to meeting the

production goals claimed by Tesla, producing only 2,700 Model 3’s for all of 2017.

The FBI is investigating whether Musk disclosed production projections with

knowledge that such production capability would be impossible to achieve.25

226. On November 1, 2018, Tesla filed a Form 10-Q with the SEC, reporting

that “the SEC has issued subpoenas to Tesla in connection with (a) Mr. Musk’s prior

statement that he was considering taking Tesla private and (b) certain projections

that we made for Model 3 production rates during 2017 and other public statements

relating to Model 3 production. The DOJ has also asked us to voluntarily provide

it with information about each of these matters and is investigating.”

227. Musk’s Guidance Tweet and Valuation Tweet show that the SEC

Settlement and Board have failed to curb Musk’s behavior.

228. Professor Sonnenfeld has opined that “Tesla investors must realize that

they have a panicky, erratic, possibly self-destructive C.E.O. at the helm. No C.E.O.

25
Dana Cimilluca et al., Tesla Faces Deepening Criminal Probe Over Whether It
Misstated Production Figures, WALL ST. J., Oct. 26, 2018, https://www.wsj.com/
articles/tesla-faces-deepening-criminal-probe-over-whether-it-misstated-
production-figures-1540576636.
- 78 -
is ever this confused and confusing.”26

229. The announcement of the SEC investigation caused Tesla’s stock price

to plummet and analysts to downgrade Tesla’s rating. A Tesla analyst at JP Morgan

confirmed in a note to investors that “[w]e are concerned that decreased confidence

in Tesla on the part of investors may impact the company’s ability to raise capital on

amenable terms.”

230. Indeed, as demonstrated by the fact that the Company was compelled

to deplete its cash reserves that otherwise could have been redeemed with stock but

for the downward pressure on the Company’s stock price caused by Musk’s unlawful

tweets, further unchecked tweeting by Musk can have severe ramifications on the

Company’s ability to secure financing in the future.

231. Finally, Musk’s unchecked behavior drives out the very voices in the

Company meant to stand up to him and protect the Company and its investors. The

day after Musk violated the SEC Settlement, Tesla’s esteemed new General Counsel

— who declared Tesla’s mission was “critical to the future of the planet” — quit. “I

don’t think it’s a coincidence that the general counsel is leaving after a tweet that

appears to violate the agreement,” said Rebecca Lindland, executive editor of

26
David Gelles, Why Elon Musk Reversed Course on Taking Tesla Private, N.Y.
TIMES, Aug. 25, 2018, https://www.nytimes.com/2018/08/25/business/elon-musk-
tesla-private.html.
- 79 -
RebeccaDrives.com, an auto-industry and car review website. “It calls into question

the oversight of the board and the adherence to the S.E.C. settlement.”

232. Defendant Musk’s continuing violation of the SEC settlement and

Judgment has caused substantial harm to Tesla. Musk’s Valuation Tweet destroyed

almost $14 billion of Tesla’s market capitalization in a single day — more than three

times the harm caused to Tesla by Musk’s go-private tweet. This happened despite

the SEC Settlements, despite the existence of the Revised Policy, and despite

changes to the composition of the Board. Musk and the Board have failed Tesla and

their stockholders, and Musk’s misconduct cannot be allowed to continue

unchecked.

DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS

233. Plaintiff brings this action derivatively in the right and for the benefit

of Tesla to redress injuries suffered, and to be suffered, by Tesla as a direct result of

the breaches of fiduciary duty by Defendants. Tesla is named as a Nominal

Defendant solely in a derivative capacity.

234. Plaintiff is a stockholder of Tesla, was a stockholder of Tesla at the time

of the wrongdoing alleged herein, and has been stockholders of Tesla continuously

since that time.

235. Plaintiff will adequately and fairly represent the interests of Tesla in

enforcing and prosecuting its rights, and has retained counsel competent and

- 80 -
experienced in derivative litigation.

236. As a result of the facts set forth herein, Plaintiff has not made any

demand on the Board to institute this action against Musk. Such a demand would be

a futile and useless act because the Tesla Board is incapable of making an

independent and disinterested decision to institute and vigorously prosecute this

action. The Board has consistently proven itself to be incapable of preventing Musk

from continuing his unlawful and damaging tweets. Any demand upon the Board to

take action against itself or Musk would be futile because the Board itself has failed

to do anything to prevent Musk’s conduct, even after supposedly enacting policies

to curtail Musk’s unlawful conduct, which has continued unabated.

237. Because Musk controls indemnification for any liability found against

it, the Board is incapable of exercising independent objective judgment about

whether to bring this action or whether to vigorously prosecute this action.

238. The Tesla Board is currently comprised of nine (9) members—

Defendants E. Musk, Denholm, Ehrenpreis, Gracias, Murdoch, K. Musk, Mizuno,

Ellison, and Wilson-Thompson. Thus, Plaintiff is required to show that a majority,

i.e., five (5), cannot exercise independent objective judgment about whether to bring

this action or whether to vigorously prosecute this action.

A. Demand Would Be Futile Because the Board (or, at least, a

Majority of the Board) Faces a Substantial Likelihood of Liability
as a Result of the Conduct Described Herein.

- 81 -
 239. The Board faces a substantial likelihood of liability because it caused

or otherwise permitted Tesla to issue false and misleading statements concerning the

information described herein. Because of their advisory, executive, managerial, and

directorial positions with Tesla, the Board had knowledge of material non-public

information regarding the Company and were directly involved in the operations of

the Company at the highest levels.

240. The Board either knew or should have known of the false and

misleading statements that were issued on the Company’s behalf and took no steps

in a good faith effort to prevent or remedy that situation, proximately causing

millions of dollars of losses for Tesla shareholders.

241. The Board (or at the very least a majority of Board members) cannot

exercise independent objective judgment about whether to bring this action or

whether to vigorously prosecute this action. For the reasons that follow, and for

reasons detailed elsewhere in this Complaint, Plaintiff has not made (and is excused

from making) a pre-filing demand on the Board to initiate this action because making

a demand would be a futile and useless act.

242. The Board approved and/or permitted the wrongs alleged herein to have

occurred and participated in efforts to conceal or disguise those wrongs from the

Company’s stockholders or recklessly and/or with gross negligence disregarded the

wrongs complained of herein and are therefore not disinterested parties. The Board

- 82 -
THIS DOCUMENT IS A CONFIDENTIAL FILING. ACCESS IS PROHIBITED
EXCEPT AS AUTHORIZED BY COURT ORDER
is interested because they engaged in conduct which is not protected by the business

judgment rule in connection with their failure to protect the Company against

Musk’s harmful social media communications, including failing to

the Senior Executives Communications Policy and Revised Policy.

243. The Board’s failure to ensure a truly independent general counsel at

Tesla represents an egregious breach of the Board’s duty of loyalty, since the general

counsel’s role is to protect Tesla’s interests rather than any personal interests

possessed by Elon Musk. Rebecca Lindland, executive editor of

RebeccaDrives.com, an auto-industry and car review website, stated that the

departure of Tesla’s esteemed general counsel after Musk plainly violated the SEC

Settlements in February 2019 “calls into question the oversight of the board and

the adherence to the S.E.C. settlement.”

244. Moreover, as detailed herein, the

about Musk’s alleged violation of the Judgment demonstrate that

- 83 -
 245. The failure of the Board to appoint an independent General Counsel at

Tesla demonstrates the Board’s breach of its duties of loyalty and good faith.

246. Many highly respected legal scholars have commented on the failures

of the Board in addressing the SEC Action and Musk’s underlying misconduct as

the Board continued to neglect their duties:

“What it tells us is this board, as a strategic plan, must be using the

Jim Jones-Jonestown suicide pact,” Jeffrey Sonnenfeld, a professor at
the Yale School of Management, said Friday on CNBC. “They are
drinking the Kool-Aid of the founder. It is completely as self-
destructive as Musk is.”27

247. Similarly, Professor Coffee authored an article entitled “Bonfire of the

Vanities — 2018 Style: The Case of Elon Musk,”28 where he explained:

Rejecting such a favorable settlement is proof that [Musk] needs

monitoring. He didn’t have a legal leg to stand on, and I’m sure his
lawyer told him that. But he got very touchy about not being able to
proclaim his innocence.

27
James B. Stewart, Elon Musk’s Ultimatum to Tesla: Fight the S.E.C., or I Quit,
N.Y. TIMEs, Oct. 2, 2018,
https://www.nytimes.com/2018/10/02/business/tesla-elon-musk-sec.html.
28
John C. Coffee, Jr., Bonfire of the Vanities — 2018 Style: The Case of Elon Musk,
CLS BLUE SKY BLOG, Oct. 2, 2018,
http://clsbluesky.law.columbia.edu/2018/10/02/bonfire-of-the-vanities-the-case-of-
elon-musk/.
- 84 -
 More important, one large unanswered question remains: Where was
Tesla’s board in all this? The only answer is: missing in action!
Indeed, it publicly stood behind Musk, expressing its support on
Thursday, while he placed at risk a large percentage of Tesla’s value
for no good reason (other than to avoid personal embarrassment).

The current Tesla board is an old boys club, and none of Musk’s
buddies can hold him accountable. Without a strong monitor, our
reckless entrepreneur will predictably fall victim again to his
impulses.

248. As another example, an October 4, 2018 article in the online version of

The Wall Street Journal, entitled “Elon Musk Tweet Mocks the Securities and

Exchange Commission,” observed that Musk’s “openly sneering at federal

regulators who only days earlier charged him with fraud and sought to ban him from

Tesla takes Mr. Musk’s defiance to a new level.” It also quoted former SEC

Commissioner Harvey Pitt, who characterized the tweet as “juvenile, narcissistic,

stupid, erroneous and petulant.”29

249. Even after Musk jeopardized the SEC Settlements by tweeting in

violation of the Senior Executive Communications Policy, the Board said nothing as

he publicly tweeted that “[s]omething is broken with SEC oversight.” That the Board

still has not imposed meaningful restrictions on Musk’s use of his Twitter account,

especially when dealing with Tesla’s business and its dealings with its securities

29
Tim Higgins & Gabriel T. Rubin, Elon Musk Tweet Mocks the Securities and
Exchange Commission, WALL ST. J., Oct. 4, 2018, https://www.wsj.com/articles/
elon-musk-tweet-appears-to-mock-the-securities-and-exchange-commission-
1538685320.
- 85 -
regulator, the SEC, further shows the Board’s complete abdication of its fiduciary

duties and its bad faith.

250. In other words, at all relevant times the Board was on explicit notice

that they were failing in their duties, but nonetheless continued to authorize and/or

permit Musk and the Company to make false statements that disseminated directly

to the public and made available and distributed to shareholders, authorized and/or

permitted the issuance of various false and misleading statements. The Board is the

principal beneficiary of the wrongdoing alleged herein, and thus, could not fairly

and fully prosecute such a suit even if they instituted it. Thus, for this reason alone,

demand is excused.

251. Further, the Board is unable to independently and disinterestedly

consider a demand, because they knowingly abdicated their duties and caused Tesla

to violate the Final Judgments, as well as the SEC Settlements and the Senior

Executive Communications Policy, all of which were approved by the Board, by

failing to oversee Musk’s tweets containing material non-public information,

exposing the Board, and Tesla, to a substantial threat of liability. Therefore, demand

is excused.

252. On April 15, 2020, Judge Chen denied the motion to dismiss brought

by defendants in the related securities fraud class action complaint, exposing Tesla

to significant damages. Defendants E. Musk, Brad W. Buss, Robyn Denholm, Ira

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Ehrenpreis, Antonio J. Gracias, James Murdoch, Kimbal Musk, and Linda Johnson

Rice are defendants in that case, and thus face a substantial likelihood of liability in

such case, impairing their independence and objectivity in this case.

B. The Board Is Not Independent

253. Further, a majority of the Board is unable to independently and

disinterestedly consider a demand to commence and vigorously prosecute this

action.

254. Most importantly, the Board is insured, and thus indemnified, by Musk

personally for a majority of the harm caused by Musk alleged herein. The Board

cannot be considered independent in any way from Musk in these circumstances.

Musk could refuse to pay out the “insurance policy” if the Board elected to proceed

with an investigation of him, and the Board would have every incentive to abandon

that investigation.

255. Additionally, separate and apart from the fact that Musk is personally

insuring the directors of Tesla, at all relevant times, a majority of the Board was not

independent from Musk.

a. Elon Musk

256. The principal professional occupation of Elon Musk is his employment

as CEO of Tesla. According to the Company’s most recent Proxy Statement, filed

with the SEC on May 28, 2020, the Board acknowledges that Musk is not

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independent. Musk owns approximately 20% of Tesla’s stock. In the March 28, 2018

decision in In Re Tesla Motors, Inc. Stockholder Litigation, C.A. No. 12711-VCS,

the Delaware Court of Chancery ruled that it was reasonably conceivable that Musk

was the Company’s controlling stockholder. Musk also admitted his control over

Tesla during his 60 Minutes interview in which he stated, “I can just call for a

shareholder vote and get anything done that I want.”

257. Musk is interested because he faces a substantial likelihood of liability

for breaching his fiduciary duties of loyalty and good faith for his behavior,

including the Go-Private Tweets, which have caused the SEC Action and damaged

the Company through the SEC Settlement, as well as the Guidance Tweet and the

Valuation Tweet, all of which potentially violated the SEC Settlements and,

particularly in the case of the Valuation Tweet, caused Tesla massive damage.

258. Musk is also interested because he was Chairperson on the Board when

the Company approved the SEC Settlements and adopted the Senior Executives

Communications Policy and was a director when the Company approved the

Revised Policy. As Director, Musk faces a substantial likelihood of liability for the

Board’s failure to enforce the Senior Executives Communications Policy, which led

to his February 2019 tweets, the subsequent legal action of the SEC, the Guidance

and Valuation Tweets, and potential violation of the SEC Settlements.

259. For all of these reasons, Musk cannot disinterestedly and independently

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consider a demand to prosecute the claims alleged herein.

b. Larry Ellison

260. Ellison cannot disinterestedly and independently consider a demand

against his “very close friend” Musk.

261.

262. Finally, Ellison is also interested because he faces a substantial

likelihood of liability for the Board’s failure to enforce the Senior Executives

Communications Policy and Revised Policy, which led to Musk’s February 2019

tweets, the subsequent legal action of the SEC, the Guidance and Valuation Tweets,

and potential violation of the SEC Settlements.

263. Ellison also has received very large compensation as a director of Tesla.

IN 2019, Ellison was awarded total compensation as a director of Tesla of

$5,868,976.

264. Accordingly, Ellison cannot disinterestedly and independently consider

a demand.

c. Gracias

265. Gracias cannot disinterestedly and independently consider a demand

against his close friend Musk.

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 266. The relationship between Musk and Gracias dates back to at least 2001,

when Gracias invested in PayPal. Musk subsequently provided Gracias and Valor

the opportunity to participate in several pre-IPO venture funding rounds for

SolarCity, Tesla, and SpaceX, and appointed him to the board of directors of each

company. In fiscal year 2015, Gracias received almost $11 million in aggregate

director compensation from Tesla and SolarCity, in addition to whatever he earned

as a director of SpaceX.

267. In addition, both Musk and K. Musk are invested in various Valor

funds. As manager of these funds, Gracias serves as a fiduciary to Musk and K.

Musk. Valor’s website includes a testimonial from Musk, in which he describes

Gracias’s value to Tesla: “I’d like to thank Valor for being a key investor. And not

just an investor, but a strategic partner. I don’t think we would’ve made it without

their help, so thank you.”30 Gracias uses these testimonials and his relationship with

Elon Musk to solicit fund investors and entrepreneurs seeking venture capital on

behalf of Valor.

268. Gracias also received out-sized compensation as a member of the Tesla

Board. By way of example, in fiscal year 2018, Gracias earned compensation valued

at $13,323,657 for acting as a Tesla director.

30
Testimonials, http://www.valorep.com/about (follow Testimonials hyperlink)
(last visited Feb. 28, 2019).
- 90 -
 269. In May 2018 Institutional Shareholder Services (“ISS”), a proxy

advisory firm, recommended that shareholders vote against Gracias as director also

in Tesla’s 2018 elections because after its analysis ISS viewed Gracias as non-

independent. ISS wrote that Gracias, CEO of Valor Management Corp, is not

sufficiently independent for key Tesla board committees. It also cited concerns

regarding the lack of performance-based elements in Tesla’s pay plan in

recommending the vote against Gracias, a compensation committee member.

270. A May 19, 2018 Bloomberg article entitled “Tesla Shareholders Urged

to Separate Chairman's Role From Musk” quotes ISS as stating:

Gracias was previously categorized as independent, but he is now

categorized as non-independent because Valor Management Corp., of
which Gracias is CEO and majority owner, provided consulting
services to Tesla in 2017, ISS wrote, noting that VMC provided Tesla
consulting services relating to “operational optimization” and was
reimbursed over $34,000 for those services.31

271. In May 2018, CtW Investment Group (“CtW”) recommended that

shareholders vote against Gracias as director also in Tesla’s 2018 elections. In a

letter filed with the SEC on May 9, 2018 on Form PX14A6G, CtW wrote that

“Antonio Gracias, a venture capital investor with multiple ties to Elon Musk, lacks

the independence to serve as Lead Independent director, and has not initiated the

31
Dana Hull, Tesla Shareholders Urged to Separate Chairman’s Role from Musk,
BLOOMBERG, May 19, 2018, https://www.bloomberg.com/news/articles/ 2018-05-
19/tesla-shareholders-urged-to-separate-chairman-s-role-from-musk.
- 91 -
much-needed process of board renewal.” In this letter CtW also stated:

Antonio Gracias has extensive personal and business ties to Elon Musk,
which we believe make him especially ill-suited for a leadership role
on the Tesla board. Mr. Gracias, along with his venture capital firm
Valor Management Corp., participated in four Tesla venture funding
rounds between 2005 and 2008, as well as a pre-IPO venture debt raise
in 2009, joined the Tesla board in 2007, and was named Lead
Independent Director in 2010. Notably, he does not appear to have
served on the board of any public companies that are not associated
either with Valor (i.e., its portfolio companies) or Elon Musk. Mr.
Gracias has been an investor in multiple companies started by Elon
Musk, including PayPal, Solar City (where he was a director), and
SpaceX (where he remains a director). Elon Musk in turn has invested
in at least one Valor fund, and is a personal friend of Mr. Gracias, to
who he gave the second Tesla Roadster ever built.

272. Gracias is further incapable of impartially considering a demand to

commence and vigorously prosecute this action because of his personal involvement

in the issues at hand. Specifically, the day that Musk made the Go-Private Tweets,

the Tesla Board

Musk’s reckless

social media communications continued.

273. Finally, Gracias is also interested because he was a director on the

Board when the Company approved the SEC Settlements and adopted the Senior

Executives Communications Policy and the Revised Policy. Gracias faces a

substantial likelihood of liability for the Board’s failure to enforce the Senior

Executives Communications Policy and the Revised Policy, which led to Musk’s

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February 2019 tweets, the subsequent legal action of the SEC, the Guidance and

Valuation Tweets, and potential violation of the SEC Settlement.

274. For all these reasons, Gracias cannot disinterestedly and independently

consider a demand to prosecute the claims alleged herein.

d. K. Musk

275. K. Musk cannot disinterestedly and independently consider a demand

against his brother, Elon Musk. K. Musk sits on the Boards of Directors of Tesla and

SpaceX by virtue of being Elon Musk’s brother, and collects significant director fees

as a result thereof. By way of example, for serving as a Tesla director, in 2018 K.

Musk earned compensation valued at $6,860,523. Tesla admits in its proxy

statements that K. Musk is not independent.

276. In May 2018, CtW recommended that shareholders vote against K.

Musk as director in Tesla’s 2018 elections. In a letter filed with the SEC on May 9,

2018 on Form PX14A6G, CtW wrote that “Kimbal Musk — Elon Musk’s brother

— shares several of Mr. Gracias’s conflicts, has no professional experience in the

auto industry, and has proven ineffective as a public company director at Chipotle.”

In this letter CtW also stated in relevant part:

Kimbal Musk is Elon Musk’s brother, and has served on the Tesla
Board since April 2004. He is also the cousin of Lyndon and Peter Rive,
Solar City’s co-founders. Kimbal Musk is also an investor in two Valor
venture capital funds, which are managed by Mr. Gracias. While Tesla
acknowledges that Kimbal Musk is not an independent director, the
- 93 -
 board has nevertheless re-nominated him: we view this decision,
following both Tesla’s poor first quarter and the court’s citation of
extensive board conflicts, all but inexplicable. Or, rather, we would find
it inexplicable if Tesla were anything like a well-run public company.
Unfortunately, we know exactly why Kimbal Musk was re-nominated
despite lacking any relevant industry experience or possessing a track
record of effective public company board service [], and his re-
nomination goes to the heart of the problems with Tesla’s board: too
many of these directors, including all three of this years’ nominees, are
incapable or unwilling to contradict Elon Musk’s whims and finally
insist on a board renewal process that provides shareholders with
competent and effective representation.

277. In addition, K. Musk is not independent from Gracias (his brother’s

close friend with whom he sits on both the Tesla Board and the SpaceX Board),

because of Gracias’s control over private equity funds in which K. Musk has

invested. As discussed above,

278. Finally, K. Musk is also interested because he was a director on the

Board when the Company approved the SEC Settlements and adopted the Senior

Executives Communications Policy and the Revised Policy. K. Musk faces a

substantial likelihood of liability for the Board’s failure to enforce the Senior

Executives Communications Policy and the Revised Policy, which led to Musk’s

February 2019 tweets, the subsequent legal action of the SEC, the Guidance and

Valuation Tweets, and potential violation of the SEC Settlements.

279. For all these reasons, K. Musk cannot disinterestedly and independently

consider a demand to prosecute the claims alleged herein.

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 e. Ehrenpreis

280. Ehrenpreis cannot disinterestedly and independently consider a demand

against Musk. Ehrenpreis, his partner Pfund, and the various funds they manage have

collectively invested in all three of Elon Musk’s current companies — Tesla,

SolarCity, and SpaceX. In addition, Ehrenpreis’s interest in Mapbox and the

payments to be received in connection therewith from Tesla impact his ability to

disinterestedly consider a demand.

281. Ehrenpreis also received out-sized compensation as a member of the

Tesla Board. By way of example, for serving as a Tesla director, in 2018 Ehrenpreis

earned compensation valued at $9,910,244.

282. As an example of level of personal relationship between Ehrenpreis and

Musk, in September 2015, Musk gave Ehrenpreis one of the first Tesla Model X’s

ever produced. And two years later, Musk gave Ehrenpreis the rights to the first

Tesla Model 3. Ehrenpreis then paid for the Model 3 and gifted the car back to Musk

as part of Musk’s 46th birthday present.

283. As stated in the April 26, 2018 Proxy Statement (“2018 Proxy

Statement”), Tesla admits:

Mr. Ehrenpreis is a manager of DBL Partners Fund III (“DBL III”).

Each of Mr. Ehrenpreis and DBL III is a minority investor in SpaceX.
Tesla and certain Tesla directors have relationships with SpaceX.

- 95 -
 Mr. Ehrenpreis is a co-owner of DBL Partners. Another co-owner of
DBL Partners is a manager of DBL Investors, which is also an investor
in Space.

Mr. Ehrenpreis serves [as] a member of the board of directors of

Mapbox Inc., a provider of custom online maps (“Mapbox”). In
December 2015, Tesla entered into an agreement with Mapbox relating
to a vehicle map-related project, pursuant to which Tesla made a
prepayment of $3 million in 2016 for certain fees. Tesla will pay
Mapbox to the extent any additional fees for services are incurred in
excess of such prepaid fees.

284.

285. Finally, Ehrenpreis is also interested because he was a director on the

Board when the Company approved the SEC Settlements and adopted the Senior

Executives Communications Policy and Revised Policy. Ehrenpreis faces a

substantial likelihood of liability for the Board’s failure to enforce the Senior

Executives Communications Policy and Revised Policy, which led to Musk’s

February 2019 tweets, the subsequent legal action of the SEC, the Guidance and

Valuation Tweets, and potential violation of the SEC Settlements.

286. For all these reasons, Ehrenpreis cannot disinterestedly and

independently consider a demand to prosecute the claims alleged herein.

f. Denholm
- 96 -
 287. Denholm cannot disinterestedly and independently consider a demand

against Musk. Indeed, in an interview with 60 Minutes after Denholm was elected

Chairperson as a result of the SEC Settlements, Musk stated that he “handpick[ed]

her” and said it was “not realistic” to think Denholm could “watch over” him.

288. Further, Denholm is not capable of considering a pre-litigation demand

because of the out-sized compensation she receives as a member of the Tesla Board

of Directors. By way of example and as disclosed in Tesla’s various Proxy

Statements, for serving as a Tesla director Denholm received compensation valued

at $7,181,066 in 2014, $4,979,785 in 2015, $4,921,810 in 2017, $6,838,600 in 2018,

and $ 2,743,679 in 2019. By way of comparison, on January 1, 2017, Denholm

joined Telstra (a telecommunications and technology company) as its Chief

Operating Officer (“COO”) and earned $890,006 in total compensation for that year.

Denholm became Telstra’s CFO on October 1, 2018.

289. Finally, Denholm is also interested because she was a director on the

Board when the Company approved the SEC Settlements and adopted the Senior

Executives Communications Policy and Revised Policy. Denholm also faces a

substantial likelihood of liability for the Board’s failure to enforce the Senior

Executives Communications Policy and Revised Policy, which led to Musk’s

February 2019 tweets, the subsequent legal action of the SEC, the Guidance and

Valuation Tweets, and potential violation of the SEC Settlements.

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 290. Denholm is the chair of the Disclosure Controls Committee. The

Disclosure Controls Committee is responsible for, among other things:

• overseeing the implementation of and compliance with the terms of Tesla’s

consent agreement with the SEC dated September 29, 2018, as amended April

26, 2019;

• overseeing the controls and processes governing certain public disclosures

by Tesla and its executive officers; and

• reviewing and resolving certain conflicts of interest or other human

resources issues involving any executive officer and ensuring appropriate

disclosures, if applicable.

291. Denholm has abdicated her duties as Chair of the Disclosure Controls

Committee and has failed to curtail Musk’s wrongful conduct. For all of these

reasons, Denholm cannot disinterestedly and independently consider a demand to

prosecute the claims alleged herein.

g. Mizuno

292. Mizuno is interested because he faces a substantial likelihood of

liability for the Board’s failure to enforce the Senior Executives Communications

Policy and Revised Policy, which led to Musk’s Valuation Tweet, and potential

violation of the SEC Settlements.

293. For all of these reasons, Mizuno cannot disinterestedly and

- 98 -
independently consider a demand to prosecute the claims herein.

h. Murdoch

294. Murdoch is interested because he was a director on the Board when the

Company approved the SEC Settlements and adopted the Senior Executives

Communications Policy and Revised Policy. Murdoch also faces a substantial

likelihood of liability for the Board’s failure to enforce the Senior Executives

Communications Policy and Revised Policy, which led to Musk’s February 2019

tweets, the subsequent legal action of the SEC, the Guidance and Valuation Tweets,

and potential violation of the SEC Settlements.

295. ISS has previously recommended against Murdoch’s re-election to the

Tesla Board, noting that Murdoch is “overboarded” since he serves as the CEO of

Twenty-First Century Fox Inc (FOXA.O) and on other boards. Glass Lewis also

recommended against Murdoch’s re-election.

296. Murdoch is a member of the Disclosure Controls Committee. The

Disclosure Controls Committee is responsible for, among other things:

• overseeing the implementation of and compliance with the terms of Tesla’s

consent agreement with the SEC dated September 29, 2018, as amended April

26, 2019;

• overseeing the controls and processes governing certain public disclosures

by Tesla and its executive officers; and

- 99 -
 • reviewing and resolving certain conflicts of interest or other human

resources issues involving any executive officer and ensuring appropriate

disclosures, if applicable.

297. Murdoch has abdicated his duties as a member of the Disclosure

Controls Committee and has failed to curtail Musk’s wrongful conduct.

298. Murdoch also received out-sized compensation as a member of the

Tesla Board. As disclosed in Tesla’s 2018 Proxy Statement, for serving as a Tesla

director, Murdoch received compensation valued at $1,926,972 in 2017 and

$9,031,082 in 2018.

299. For all these reasons, Murdoch cannot disinterestedly and

independently consider a demand to prosecute the claims alleged herein.

i. Wilson-Thompson

300. Kathleen Wilson-Thompson is interested because she faces a

substantial likelihood of liability for the Board’s failure to enforce the Senior

Executives Communications Policy and Revised Policy, which led to Musk’s

February 2019 tweets, the subsequent legal action of the SEC, the Guidance and

Valuation Tweets, and potential violation of the SEC Settlements.

301. Wilson-Thompson also has received very large compensation as a

director of Tesla. In 2019, Wilson-Thompson was awarded total compensation as a

director of Tesla of $ 7,356,738.

- 100 -
 302. Wilson-Thompson is a member of the Disclosure Controls Committee.

The Disclosure Controls Committee is responsible for, among other things:

• overseeing the implementation of and compliance with the terms of Tesla’s

consent agreement with the SEC dated September 29, 2018, as amended April

26, 2019;

• overseeing the controls and processes governing certain public disclosures

by Tesla and its executive officers; and

• reviewing and resolving certain conflicts of interest or other human

resources issues involving any executive officer and ensuring appropriate

disclosures, if applicable.

303. Wilson-Thompson has abdicated her duties as a member of the

Disclosure Controls Committee and has failed to curtail Musk’s wrongful conduct.

304. Accordingly, Wilson-Thompson cannot disinterestedly and

independently consider a demand.

COUNT I
Derivative Claim Against Musk for Breaches of his Fiduciary Duties in his
Capacities as Director, Officer, and Controlling Stockholder

305. Plaintiff incorporates by reference and realleges each and every

allegation set forth above, as though fully set forth herein.

306. Plaintiff, on behalf of Tesla, has no adequate remedy at law.

307. As alleged throughout the complaint, Elon Musk controls Tesla and the

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Board.

308. As Tesla’s controlling stockholder, Musk owes fiduciary duties to the

Company and its remaining stockholders.

309. Musk, as a director and CEO, owes the Company and its stockholders

the fiduciary duties of due care, good faith, and loyalty.

310. As alleged above, Musk failed to act in accordance with these fiduciary

duties. Specifically, based on the facts alleged above, the Go-Private Tweets,

Guidance Tweet, and Valuation Tweet constituted an intentional dereliction of his

fiduciary duties and a conscious disregard for his responsibilities not to make false

and materially misleading statements to the market and not to attempt to manipulate

the market for Tesla stock.

311. Further, Musk knowingly violated Tesla’s policies, the SEC

Settlements, and the Final Judgments, breaching his fiduciary duties, subjecting

Tesla to further damages as a result of those violations.

312. Any breach of the duty of due care by Musk is not exculpated in his

capacity as an officer of Tesla.

313. As a direct and proximate result of these breaches of fiduciary duty,

Tesla has sustained and will continue to sustain damages, for which Musk is liable

to the Company.

COUNT II

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 Derivative Claim Against the Tesla Board
For Breaches of Fiduciary Duties

314. Plaintiff incorporates by reference and realleges each and every

allegation contained above, as though fully set forth herein.

315. Plaintiff, on behalf of Tesla, has no adequate remedy at law.

316. The Tesla Board owes the Company and its stockholders the fiduciary

duties of due care, good faith, and loyalty.

317. The Tesla Board acted with a conscious disregard for their

responsibilities to ensure that the Company’s public statements, including those that

Musk made on behalf of the Company through his personal Twitter account, were

not false and materially misleading, including by failing to immediately correct the

Go-Private Tweets, by failing to comply with the SEC Settlement, and by allowing

Musk to continue his misconduct unchecked, including by making the Guidance

Tweet and Valuation Tweet.

318. The Tesla Board also acted with a conscious disregard for their

responsibilities to ensure that the Company’s public statements, including those that

Musk made through his personal Twitter account, were not false and materially

misleading, by failing to put into place any sort of meaningful pre-clearing

mechanism with respect to Musk’s tweets or to otherwise control his dissemination

of false or misleading information concerning Tesla. The Tesla Board failed to

provide such controls despite knowing that Musk disseminated false, misleading,
- 103 -
irresponsible and defamatory information via his Twitter account and despite filing

with the SEC a Form 8-K on November 5, 2013, in which the Company advised

shareholders and the market generally that Musk’s Twitter account would provide

“material information” concerning Tesla.

319. Further, the Board failed to oversee Musk, knowingly acquiescing to

his violations of Tesla’s policies, the SEC Settlements, and the Final Judgments,

breaching their fiduciary duties, and subjecting Tesla to further damages as a result

of those violations.

320. As a direct and proximate result of these breaches, Tesla, Plaintiff, and

all other Tesla stockholders have sustained and will continue to sustain damages, for

which the Tesla Board are liable to the Company.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays that this Court:

A. Grant the declaratory relief as requested herein;

B. Find Defendants liable for their breaches of fiduciary duties owed to

the Company;

C. Award, against the Defendants and in favor of Tesla, damages, together

with pre- and post-judgment interest;

D. Award to Plaintiff the costs and disbursements of the action, including

reasonable attorneys’ fees, accounts’ and experts’ fees, costs and expenses; and

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 E. Grant such other and further relief as the Court deems just and proper.

Respectfully submitted,

COOCH AND TAYLOR, P.A.

/s/ Blake A. Bennett

Blake A. Bennett (#5133)
The Nemours Building
1007 N. Orange St., Suite 1120
Wilmington, DE 19801
Telephone: (302) 984-3800
Facsimile: (302) 984-3939
Email: [email protected]
Counsel for Plaintiff

DATED: MARCH 8, 2021

OF COUNSEL:
BOTTINI & BOTTINI, INC.
Francis A. Bottini, Jr.
Albert Y. Chang
Yury A. Kolesnikov
7817 Ivanhoe Avenue, Suite 102
La Jolla, California 92037
Telephone: (858) 914-2001
Facsimile: (858) 914-2002
Email: [email protected]
[email protected]
[email protected]

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