NYC to sue Tesla over Elon Musk’s alleged breach of fiduciary duties

New York City Comptroller Brad Lander has asked the city, which is a major Tesla shareholder, to sue Tesla and CEO Elon Musk over alleged breaches of fiduciary duties.

Lander asked the New York City Law Department to pursue securities litigation against Tesla on behalf of the New York City pension systems, which owns 3 million shares in Tesla.

The comptroller said:

“Ever since Elon Musk took over DOGE and became best-friend-in-chief with President Trump, Tesla—where Musk is supposed to be CEO—has suffered financially, causing enormous losses for Tesla shareholders. In less than three months, Tesla stock has lost nearly 40% of its value, with losses over $300 million for the New York City pension systems. We have long expressed concerns that the Tesla board has failed to provide independent oversight, or to require that Musk – or someone else – serve as a full-time CEO. Now, it appears that material misstatements from Tesla misled investors about his role at the company. That’s why I’m calling on the Law Department to file securities litigation: because Elon Musk is so distracted that he’s driving Tesla off a financial cliff and taking down shareholder value with it.” 

It echoes other recent concerns regarding Musk’s fiduciary duties to Tesla shareholders.

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Last summer, Tesla shareholders sued Tesla over an alleged breach of fiduciary duty regarding Musk’s AI funneling threats.

In the lawsuit, the shareholders argue that Musk has breached his fiduciary duties to Tesla shareholders by funding xAI, a private AI company, poaching Tesla employees, threatening not build AI products at Tesla unless given more control over the company, and for funneling resources from Tesla to his private companies.

Now, the NYC comptroller is piling on by adding that Tesla and Musk have been misleading about the CEO’s role at the company over the last year:

Despite stating in Tesla’s December 2024 SEC filing that “We are highly dependent on the services of Elon Musk, Technoking of Tesla and our Chief Executive Officer” and claiming that he “spends significant time with Tesla,” Musk has clearly abandoned Tesla in favor of DOGE and President Trump’s MAGA mission. By wreaking havoc on the Inflation Reduction Act, he is taking actions that are harmful to the market for electric vehicles. In addition, he alienated Tesla’s consumer base, causing Tesla’s vehicle sales to severely decline. Since 2017, the New York City pension systems have put the Tesla Board of Directors on notice over concerns regarding corporate governance and leadership, including the lack of a full-time CEO.  

As a representative of a major shareholder in Tesla, Lander has officially asked New York City’s law department to file “a 10b-5 shareholder lawsuit against Tesla, on behalf of the New York City pension systems, for their material misrepresentations regarding the leadership of the company.”

Electrek’s Take

If there’s still justice in the US, I think it’s inevitable that Musk will be found in breach of his fiduciary duty to Tesla shareholders.

There are so many examples from poaching Tesla employees for his private companies, to threatening not to build AI products, which he claimed were critical to Tesla, to literally funneling resources from Tesla to xAI.

And now he makes this deal with himself for xAI to buy X.

I expect that he will push for Tesla to invest in xAI at Tesla’s upcoming shareholders meeting right after he artificially inflated the price with an overpriced acquisition of Twitter – for a second time.

It’s all madness. I would think that the breach of fiduciary duties would be fairly clear, but with the lack of checks and balances in the US these days, I’m not sure justice will prevail.