Investors sue Mark Zuckerberg over stock scheme to avoid California billionaire tax

Stockholders say Zuckerberg’s plan would allow him to preserve his control over the company by creating a new class of shares and avoid paying a one-time 5% wealth tax.(CN) — Mark Zuckerberg faces a class action filed Tuesday by a group of common stockholders challenging a proposed reclassification that would secure his control over Meta.In the lawsuit, filed in the Court of Chancery for Delaware, the plaintiffs claim Zuckerberg wrongfully used “non-voting stock” to preserve his control as founder by creating a new “Class C common stock” that holds the same economic rights as the two existing classes but with no voting rights.Under the reclassification plan, Meta will distribute one Class C share for each outstanding Class A and Class B share, allowing Zuckerberg to sell up to hundreds of billions of dollars’ worth of newly issued non-voting Class C stock over time while maintaining control over Meta for his lifetime.The stockholders are requesting a judge enjoin the reclassification plan before it takes effort on Jan. 19, 2027, and before more than 2.5 billion Class C shares are distributed and begin trading.The class is made up of the Steamfitters Local 449 Pension Fund, the Steamfitters Local 449 Retirement Security Fund, and Bruce Taylor and Ronald Mumme, who are collectively seeking a class of Class A common stockholders.The stockholders argue a special committee composed of directors tied to Zuckerberg — Robert Kimmitt, Charlie Songhurst and Tony Xu — were bullied into approving the reclassification on Zuckerberg’s preferred terms, insisting he would block any attempt to issue voting shares to raise equity and fund the company’s business plan.“Throughout the process, Zuckerberg claimed that the reclassification was necessary due to California Proposition 40, an initiative on the November 3, 2026 California General Election ballot that would impose a one-time 5% wealth tax on billionaires,” the stockholders said. “Zuckerberg warned that, to pay the tax, he would have to sell enough equity to reduce his voting power to approximately 53%.”When the special committee tried to push back on Zuckerberg’s full proposal — with members even discussing privately they would potentially dissolve the committee or resign from the board if he refused — Zuckerberg maintained his position and even increased his pressure campaign, the stockholders said. Specifically, Zuckerberg threatened to move out of California to avoid the billionaire tax, which would destabilize the company’s management.According to the stockholders, the threat was an empty one due to the fact the tax was specifically drafted to apply to California residents as of Jan. 1, 2026, and he would also be able to pay the tax over five years and borrow against his Meta shares to do so, rather than sell them.Nonetheless, the special committee acquiesced to Zuckerberg’s demands without any concessions, according to the stockholders.“The Founder Alignment Agreement permits Zuckerberg to immediately sell 20% of the non-voting Class C shares he received in the initial dividend — shares valued at approximately $23.8 billion — without selling or converting a single voting share,” the stockholders said. “The remaining shares are subject to a ‘stapling; condition,’ but that condition releases Class C shares quarterly over an eight-year period. The staggered release of the shares tracks what would be the most economically advantageous way for Zuckerberg to sell equity, slowly over time.”Further, the agreement was not conditioned on any vote by Class A stockholders — which the stockholders assert clearly would have been voted down — and follows 13 proposals to convert Meta’s capital structure to one-vote-per-share since 2014, which were all approved by the company’s unaffiliated stockholders and subsequently quashed by Zuckerberg.“The resulting bargain is unfair,” the stockholders said. “Zuckerberg receives immediate and continuing opportunities to monetize his Meta equity while retaining majority voting control. The public stockholders receive a pro rata stock dividend, but no corresponding governance protection or vote on the transaction; they also bear the economic and market costs of the new non-voting class and remain unable to influence most corporate decisions.”Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads