Judge refuses to dismiss a shareholder class-action suit against Elon Musk and Tesla’s board

Elon Musk.

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Elon Musk.
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Joe Skipper / Reuters

  • Tesla shareholders scored a small victory in their lawsuit against CEO Elon Musk and Tesla’s board on Wednesday.
  • A judge refused to dismiss a lawsuit stemming from the electric-car maker’s 2016 acquisition of the energy company, SolarCity, allowing the case to move forward.
  • Shareholders in the class-action claim are accusing Musk and the board of failing to act in their best interest in connection with the $2.6 billion SolarCity deal.

A judge refused to dismiss Tesla shareholders’ claim that CEO Elon Musk and Tesla’s board of directors acted improperly amid the electric-car company’s acquisition of SolarCity. The judge’s ruling on Wednesday effectively allows the class-action suit to move forward.

In the claim, shareholders point to Tesla’s $2.6 billion, all-stock deal to absorb SolarCity in late 2016, a move that happened while Musk held a majority stake in Tesla.

The claim alleges that Musk and the board exercised improper influence in the deal “to, among other things, orchestrate Board approval of the Acquisition,” the filing said. If true, that would violate US laws prohibiting publicly traded companies from engaging in actions that do not serve the shareholders’ best interests.

The SolarCity deal came during a difficult time for that company, which had $3 billion in debt when the board approved the acquisition in November 2016. Tesla absorbed that debt as part of the arrangement.

Shareholders in the class-action suit claim Musk and a handful of Tesla board members improperly benefited from the acquisition.

In an emailed statement Wednesday night, a Tesla spokesperson told Business Insider:

“We do not agree with the decision and will be taking appropriate next steps. It’s important to emphasize that this was a motion to dismiss in which the court was required to assume as true all of the allegations that are made in the complaint. We of course contend the allegations in the complaint are false.”

The news adds to a fresh slate of negative headlines around Tesla this week.

Moody’s downgraded the company’s corporate credit rating on Tuesday, citing Tesla’s ongoing struggle to produce the Model 3 entry level sedan. And federal investigators are also looking into a fatal crash involving a Tesla Model X SUV that caught fire after slamming into a highway barrier in Northern California.