Critical court decisions loom for Elon Musk as he straddles politics and business

Elon Musk is facing consequential court rulings in the days and weeks ahead as one judge weighs the legality of his multimillion-dollar election sweepstakes while another decides if the Tesla (TSLA) CEO gets a $56 billion compensation package back.

Musk is accustomed to doing business battles in court. But on Monday it was his recent foray into presidential politics on behalf of Republican candidate Donald Trump that had him on the defensive.

During a hearing in a Pennsylvania state court, lawyers for Musk argued that a series of $1 million giveaways tied to Musk’s pro-Trump political action committee, America PAC, did not violate state gambling and public nuisance laws, as alleged by Philadelphia District Attorney Larry Krasner.

Krasner, a Democrat, filed suit against Musk and his America PAC on Oct. 28, alleging the sweepstakes amounted to an “illegal lottery.” He asked the court for an emergency hearing to block the defendants from engaging in any unfair or deceptive acts or practices.

The sweepstakes unveiled by Musk in October offer registered swing state voters the chance to win $1 million in exchange for their email and other personal information and a pledge to support the Constitution’s free speech protections and the right to bear arms.

On Oct. 19, when Musk announced the petition, he said, “We’re going to be awarding $1 million to — randomly to — people who have signed the petition, every day, from now until the election.”

A lawyer for Musk argued in court on Monday that the giveaways didn’t amount to a lottery because the $1 million winners were not chosen randomly. Instead, the lawyer said, they were chosen for their potential as spokespeople for America PAC’s agenda, according to a post by New York Times reporter Teddy Schleifer.

Before the hearing, Chris Gober, a lawyer for Musk and America PAC, characterized Krasner’s lawsuit as a partisan agenda masquerading as legal arguments.

The case ended up back in Pennsylvania’s state Court of Common Pleas after a federal district court judge disagreed with Musk’s claim that the matter belonged in federal court.

As of Monday, America PAC said it had awarded 16 separate $1 million prizes to voters in Pennsylvania, Georgia, Nevada, Arizona, Michigan, Wisconsin, and North Carolina, and planned to award two more.

Musk faces another legal showdown in Delaware, where the judge who voided Musk’s $56 billion compensation package earlier this year is close to ruling on whether he gets back the right to that money.

Tesla is asking Delaware Chancery Court Chief Judge Kathaleen McCormick to toss out her decision and replace it with the will of the company’s stockholders, who approved the pay a second time in June.

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McCormick in January ruled that Musk’s personal relationships with board members and the general counsel were not fully disclosed to stockholders when they voted on this package initially.

Last week she made it clear a new ruling is coming soon. “I write to inform you that I aim to issue that decision before the end of this year,” McCormick wrote in a letter posted to the court’s docket on Friday.

McCormick’s decision could weigh heavily on Tesla’s bottom line.

If approved, the pay deal would give Musk the right to exercise approximately $56 billion in Tesla stock options.

Back in 2018, when the compensation package was first approved by shareholders, Tesla said the pact would cost Tesla about $2.5 billion if Musk accomplished all of his performance-based milestones.

In a later filing with the US Securities and Exchange Commission, the company said reissuing the compensation plan under Tesla’s increased stock price would cost $25 billion.

If McCormick does validate the second shareholder ratification, it’s unknown whether a new accounting charge would be required.

Robyn Denholm, Tesla’s board chair and the head of its audit committee, wrote in a statement before the vote that requiring a new accounting charge would amount to a misunderstanding of what ratification means.

“The company has already taken the expense for these options, and the reality is that ratification saves stockholders from a new charge for a new compensation plan,” Denholm said.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.

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