Elon Musk reacts after losing $85 billion in an instant

Elon Musk’s net worth has plummeted $85 billion after a bombshell court ruling voided his Tesla pay package deal.

Tesla CEO Elon Musk’s pay package has been sensationally voided by a court.

The ruling by Chancery Court Judge Kathaleen McCormick in the state of Delaware effectively means Mr Musk will be stripped of his $AU85 billion (US$56 billion) compensation deal.

The court ruled on the basis that Tesla’s board of directors had not proved that “the compensation plan was fair”.

The case was launched by Tesla shareholder Richard Tornetta, who was angered by Mr Musk’s 2018 pay package, the largest in public corporate history.

Tesla CEO Elon Musk. Picture: Omar Marques/Getty Images

Mr Tornetta claimed the company’s directors breached their fiduciary duties by awarding Mr Musk a performance-based equity-compensation plan.

The electric vehicle maker’s share price fell more than three per cent in after-hours trading following the publication of the 200-page ruling, AFP reported.

Mr Musk reacted on Twitter writing: “Never incorporate your company in the state of Delaware.”

He later added: “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters.”

The entrepreneur became the richest person ever in 2022, in large part due to the stock price of his companies Tesla and SpaceX, with an estimated net worth of $AU395 billion.

“Was the richest person in the world overpaid? The stockholder plaintiff in this derivative lawsuit says so,” Judge McCormick wrote.

She noted the plan was the “largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude — 250 times larger than the contemporaneous median peer compensation plan and over 33 times larger than the plan’s closest comparison.”

She continued: “... the defendants bore the burden of proving that the compensation plan was fair, and they failed to meet their burden.”

Mr Musk had previously received two compensation plans from Tesla, in 2009 and 2012. Both of those were linked to equity and performance-based.

A large part of the case hinged on whether or not Mr Musk controlled Tesla.

Judge McCormick ruled he did.

“Musk was the paradigmatic ‘Superstar CEO’, who held some of the most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan.

“At least as to this transaction, Musk controlled Tesla.”

That ruling shifted the burden of proof to Mr Musk’s legal team to show the process leading up to the compensation deal — and the ultimate amount, were fair.

Judge McCormick observed the process leading to the approval of the plan was “deeply flawed” because of his “extensive ties with the persons tasked with negotiating on Tesla’s behalf”.

“In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.”

The court ordered the equitable remedy of rescission, which effectively voids a contract.

‘Saving humanity’

The bombshell ruling could impact on Mr Musk’s plan to ensure humans become a multiplanetary species.

The judge noted Mr Musk “genuinely holds” the goal to “save humanity” and views “space colonisation as a means to save humanity” from the “existential threat” of artificial intelligence.

“Colonising Mars is an expensive endeavour,” she observed.

“Musk believes he has a moral obligation to direct his wealth toward that goal, and Musk views his compensation from Tesla as a means of bankrolling that mission.”

The trial took place over five days and included 1704 trial exhibits, testimony from 13 witnesses and deposition testimony from 28 witnesses.