Elon Musk invites SEC scrutiny with 'highly unusual' tweets late into the night, encouraging his $45 billion pay package

Shares of the company jumped at the opening bell Thursday after the company said in a regulatory filing that stockholders are voting to approve Musk’s pay, valued around $44.9 billion, by a wide margin.

In a filing with the U.S. Securities and Exchange Commission on Thursday, Tesla published Musk’s own posts late Wednesday on X, the social media platform he owns, with charts that appeared to show that shareholders were in favor of his compensation package, as was a measure to move Tesla’s legal home from Delaware to Texas.

The company sought the votes after a Delaware judge threw out the pay package,worth $44.9 billion in January. Chancellor Kathaleen St. Jude McCormick determined that Tesla deceived shareholders when the pay package was approved in 2018, so Musk is not entitled to the landmark package, which climbed to nearly $56 billion before a stock slide this year.

Legal experts say that releasing vote totals while balloting is in progress could present problems for Tesla, and that may be why the company made the filing with the SEC, which is likely to look into the matter.

Shareholders can still cast votes online Thursday and in person Thursday afternoon at Tesla’s annual shareholders meeting in Austin, Texas. They also can change previously cast votes.

“Anytime you tell people you’re winning, you’re encouraging others to join you and those who oppose you to pull back,” said Charles Elson, a retired professor and founder of the corporate governance center at the University of Delaware.

‘Better be accurate’

Erik Gordon, a law and business professor at the University of Michigan, said Musk’s posts could draw legal scrutiny. “His post had better be accurate or else anyone who bought stock relying on it will have a securities law case against him,” Gordon said in an email.

The SEC declined comment Thursday, and a message was left seeking comment from Tesla.

Elson said posting corporate proxy vote totals before the balloting ends is “highly unusual.”

Social media posts by Musk have drawn scrutiny from the SEC before. He and Tesla were fined a total of $40 million for statements about funding to make Tesla a private company that Musk made on X’s predecessor, Twitter, before he bought the social media platform.

Shares of Tesla shot up nearly 5% to $185.77 early Thursday. The stock is down about 25% this year.

If the pay package is approved, it would almost guarantee that Musk would remain at the company he grew to be the world leader in electric vehicles, shifting to AI and robotics including autonomous vehicles, which Musk says is Tesla’s future.

But if shareholders were to vote against his pay, the CEO could deliver on threats to take artificial intelligence research to one of his other companies. Or he could even walk away from Tesla.

Even with approval, there would be uncertainty. Musk has threatened on X to develop AI elsewhere if he doesn’t get a 25% stake in Tesla (He owns about 13% now). Musk’s xAI recently received $6 billion in funding to develop artificial intelligence.

According to Musk, early indications suggest that shareholders also back a move to relocate Tesla’s legal home to Texas, and out of Delaware.

The move is designed to escape from the Delaware court’s oversight and possibly from McCormick’s ruling. In a January opinion on a shareholder lawsuit, the judge determined that Musk controlled the Tesla board and is not entitled to the landmark pay package.

Investors remain split

Multiple institutional investors have come out against that sizeable payout, some citing falling vehicle sales, price cuts and the tumbling Tesla stock price. But Tesla’s top five institutional shareholders, Vanguard, BlackRock, State Street, Geode Capital, and Capital Research either said they don’t announce their votes or wouldn’t comment. They control about 17% of the votes.

One institutional investor who came out against the package is California’s State Teachers Retirement System. The large pension fund said Tuesday that it would vote against Musk’s pay “based on its sheer magnitude, and because the award would be extremely dilutive to shareholders. We also have concerns with the lack of focus on profitability for the company.”

In May, two big shareholder advisory firms, ISS and Glass Lewis, recommended voting against the package.

But Tesla and Musk have unleashed a furious lobbying effort to get the package approved, in posts on X, television appearances and in proxy filings with the U.S. Securities and Exchange Commission.

Tesla Chairwoman Robyn Denholm, in a letter to shareholders, wrote that the package was approved by 73% of the vote six years ago. “Because the Delaware Court second-guessed your decision, Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value. That strikes us — and the many stockholders from whom we already have heard — as fundamentally unfair, and inconsistent with the will of the stockholders who voted for it,” she wrote.

Tesla has said the 2018 award incentivized Musk to create over $735 billion in value for shareholders in the six years since it was approved.

Denied in Delaware but trying in Texas

If Tesla finalizes the vote on moving the company’s legal home to Texas before the vote on Musk’s pay package, and it manages to file the paperwork in Austin and get approval of the move, then the effect of the Delaware court ruling could be in doubt. Reapproval of the pay package would then be done as a Texas corporation and could fall under the purview of Texas courts.

Anticipating a quick move by Tesla, lawyers for the shareholder who filed the lawsuit seeking to block Musk’s pay deal, Richard Tornetta, filed motions in Delaware last month seeking an order stopping Tesla from trying to move the case. Tesla responded in letters to the judge that there is no cause for such concerns because they won’t seek a move. Besides, Tesla would still be a Delaware corporation at the time of this week’s shareholder vote, they wrote.

In an order denying Tornetta’s motions, Chancellor McCormick wrote that she interprets Tesla’s letters to mean it has no intention of relocating the case to Texas. “The defendants’ statements give me great comfort,” she wrote.

Eric Talley, a Columbia University law professor, said the lawyers are unlikely to try to move the case because their livelihood is handling business cases in Delaware courts.

But it’s also possible that the unpredictable Musk could change lawyers.

McCormick, Talley said, is telling the lawyers “OK, I’m going to believe you, but I’m going to be really irritated if this is a big send up for these things that you said you’re not going to do.”

Talley, who also is a Tesla shareholder and said at present he plans to vote against Musk’s pay, expects Tesla to follow through with appealing McCormick’s ruling to the Delaware Supreme Court.