Elon Musk nearly dictated the Tesla-SolarCity deal. Does that matter?

While the Twitter-loving Tesla head has created his own meme-worthy moments as a witness — he called the shareholders’ lawyer a “bad human being” —  the substance of the suit comes down to two questions. Did Musk, who owned 22% of Tesla shares at the time of the 2016 sale, actually control the company? And did the shareholders who ultimately approved the deal have the full picture of the risks that would come from buying SolarCity?

For Musk, the world’s second-richest man, as much as $2.6 billion is riding on his testimony — and that could be a bumpy road. 

“In recent years, plaintiffs have more and more been arguing that people are controllers, even with less than 50% of the vote,” Ann Lipton, a business professor at Tulane University Law School. ”They knew Musk was on both sides of this deal, they knew Musk wanted it to go through. What if they were afraid that if they voted against it, Musk was gonna tweet, ‘Tesla stock price too high,’ or ‘this is the end of Tesla’?”

Tesla’s purchase of SolarCity has long been mired in controversy, and had been derided at the time as a corporate bailout. The company had struggled for years. Demos of its supposedly game-changing product, solar roof tiles, were, in fact, fake. Musk has said that he was purchasing the company, founded by his cousins, in order to integrate it with Tesla’s vision of a green energy future. 

But he was also conflicted, serving as SolarCity’s chair and holding 22% of shares. Musk’s rocket company, SpaceX, owned bonds that would be rendered worthless if the company went under. The transaction did have backers, though, with Institutional Shareholder Services, a proxy firm that investors rely on for advice on how to vote, giving the green light. Tesla shareholders overwhelmingly approved the deal.

On the stand, Musk reportedly denied he pressured the board in 2016 into buying SolarCity, and he has claimed that his relatively low ownership stake means he isn’t a controlling shareholder. Evidence and testimony appear to show that Musk all but shepherded the deal to its conclusion — despite his official recusal from the process — by suggesting a price and relying on a board that may have been conflicted. 

Evidence aired in court has shown that Musk’s had more input than had previously been known. According to notes presented in court, Musk had suggested that Tesla pay $28.50 per share. That price became the top of the range that was settled on by the board. That board included his brother, Kimbal, as well as the CFO of SolarCity and two board members of SpaceX. 

Even if Musk can convince the Delaware court that he didn’t control the deal, he still has to prove that shareholders were privy to all the relevant information about SolarCity’s financial. 

Shareholders “can only fully and freely vote in favor of it if they have all the facts,” Lipton said. “And one of the claims that plaintiffs are making is that they didn’t have all the facts because SolarCity’s dire condition was concealed from them.”

During the trial, Musk said that SolarCity could have raised funds on its own, and that the acquisition was a benefit for Tesla. “I don’t think SolarCity was financially troubled,” Musk said. 

But it’s not clear how much weight that testimony holds. Evidence discovered by shareholders also show that he knew SolarCity was in a “liquidity crisis” at the time of the sale. 

The trial is expected to last about two weeks, and it’s unclear when the judge will rule. A previous shareholder lawsuit against the board was settled for $60 million, and paid for by insurance. 

Even if Musk is found liable, it’s possible he won’t be on the hook for the whole $2 billion, which would be paid to the company. Lipton noted that, in order for the judge to approve that full balance, he would likely have to rule that SolarCity was worthless and provided no benefit to Tesla. Shareholders have a “backup” argument, she said, which would wipe out any gains that Musk made on the transaction. “He shouldn’t benefit from his conflict in the transaction. That’s their backup,” she said.