Unsealed Court Docs Raise New Questions About Tesla's SolarCity Acquisition

Shares of Tesla Inc TSLA were trading lower Tuesday after more details of a 2016 lawsuit were made public.

What Happened

Legal transparency advocate PlainSite made public an opening brief in which Tesla shareholders argued the company's $2.6-billion acquisition of solar panel company SolarCity shouldn't have occurred, according to CNBC.

SolarCity was founded by Musk's cousins Lyndon and Peter Rive, and Musk himself owned more than 20% of the company.

The shareholders argued in 2016 that Tesla offered a flawed analysis and misled investors leading up to the acquisition of SolarCity.

Of particular note, SolarCity allegedly hid information from its auditors relating to payments due to lenders; the auditors concluded the solar company was insolvent after the acquisition closed, according to the lawsuit. 

The investors also argued Musk and other Tesla board members personally benefited from the acquisition despite being aware of SolarCity's financial woes, CNBC reported. 

Why It's Important

The legal documents state that Musk described Tesla, SolarCity and his other company, SpaceX, as being a "pyramid," and it was "important that there not be some sort of house of cards that crumbles if one element of the pyramid ... falters."

Tesla responded to the report and told CNBC the allegations are "based on the claims of plaintiff's lawyers looking for a payday." The allegations are "not representative" of shareholders that "ultimately voted in favor" of the SolarCity deal, the electric carmaker said. 

"Providing clean, renewable energy generation through solar has been a critical part of our mission ever since 2006, and our acquisition of SolarCity has enabled and continues to enable a significantly faster path to achieve our goals," Tesla told CNBC.

What's Next

PlainSite has filed a motion to have more material unsealed, according to CNBC.

Tesla shares were down 5.5% at $227.94 at the time of publication. The stock may also be trading down in sympathy with Chinese electric carmaker Nio Inc - ADR NIO, often referred to as the "Chinese Tesla."

The company reported higher-than-expected second-quarter losses Tuesday and said it was laying off 21% of its workforce. 

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Photo courtesy of Tesla.