Musk Takes Over Board’s Legal Coverage From Pricey Insurers (1)

Elon Musk tapped more of his shares in Tesla Inc. last year to unlock some of his wealth and also entered into an unusual arrangement to provide liability coverage for fellow members of the electric-car maker’s board.

Musk increased the share of his Tesla holding that he’s pledged as collateral for personal loans to 54% at the end of 2019, the company disclosed in a regulatory filing Tuesday. That compares with 40% at the end of 2018, when the carmaker last shared the size of Musk’s pledging.

Tesla said in the filing that the company decided not to renew its directors’ and officers’ liability policy for 2019-2020 due to “disproportionately high” premiums quoted by insurers. Musk, 48, instead agreed to personally provide coverage for a year. The carmaker’s board concluded the arrangement with the chief executive officer would not impair the independent judgment of his fellow directors.

There’s an array of ongoing securities lawsuits involving Tesla, its board or Musk, including litigation relating to the 2016 acquisition of SolarCity, statements made regarding early production of the Model 3 sedan in 2017, and the performance award the board awarded the CEO in 2018.

While Tesla and Musk settled a lawsuit the Securities and Exchange Commission brought that year regarding the CEO’s comments about taking the company private, a class-action shareholder suit is still pending.

The SEC also sent Tesla a subpoena in December seeking information on “certain financial data and contracts including Tesla’s regular financing arrangements,” the company disclosed in February. Analysts at Evercore ISI have speculated the inquiry may relate to financing Tesla lined up from Chinese banks last year that allowed the carmaker to delay recognition of capital expenditures.

Musk’s Pledging

The amended annual report from Tesla shows Musk had pledged 18.5 million shares as of Dec. 31, an increase of about 5 million shares compared with a year earlier. His overall stake in Tesla had a value of about $27 billion at Monday’s close, and the market value of his pledged shares would be roughly $15 billion assuming the position hasn’t changed this year.

While it’s not uncommon for the ultra wealthy to borrow against their stock, the amount pledged by Musk trails only Larry Ellison’s $16 billion pledge of Oracle Corp. shares on the Bloomberg Billionaires Index, a ranking of the world’s 500 richest people. Ellison, 75, is a friend of Musk’s and joined Tesla’s board in late 2018.

Tesla’s press office didn’t immediately respond to a request for comment.

(Updates with litigation starting in the fourth paragraph)

--With assistance from Anders Melin and Dana Hull.

To contact the reporter on this story:
Tom Metcalf in London at tmetcalf7@bloomberg.net

To contact the editors responsible for this story:
Pierre Paulden at ppaulden@bloomberg.net

Craig Trudell, Chester Dawson

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