Elon Musk's Problems

[Seriati]

So the news story got a bit buried yesterday (as did Rosenstein's meeting getting delayed), but the SEC filed charges against Elon Musk over his twitter claims from a while back that he had secured funding for a going private transaction with Tesla.  They are asking that he be barred from being an officer or director of any public company (e.g., Tesla) going forward.

That's an incredible ask, and it looks on the record like an easy win. 

[TheDrake]

I think he definitely violated something. But unless he sold any stock or somebody else closely related did at the elevated price, I'm not sure the penalty fits. The thing to get him in the most trouble is that specificity of price, along with the certainty.

He'll probably pull a Trump and get off with a fine.

[D.W.]

In that he may "pull a Trump" it would be that, "it's just a tweet everyone!"

With his use of 420 in it as an apparent weed joke/reference, I think the penalty is out of line.  I'm not sure if I like it or not, but the growing consensus seems to be Twitter is never to be taken seriously or a foundation for which to make important decisions...

[TheDrake]

We need to stop exchanges from raising prices on investors, says SEC Commissioner   We need to stop exchanges from raising prices on investors, says SEC Commissioner 
9:17 AM ET Wed, 26 Sept 2018 | 05:26
Federal regulators need to provide more information around insider trading rules as they pertain to company news posted on social media platforms, SEC commissioner Robert Jackson said on CNBC on Wednesday.

"If you're wondering whether it might be time for us to clarify this, I am, too," Jackson said in a "Squawk Box" interview. "We have issued some guidance in the area, but it's quite old."

The Securities and Exchange Commission defines illegal insider trading as buying or selling a stock based on "material, nonpublic information."

With many corporations and CEOs releasing company information on Twitter, there's been debate on Wall Street and Washington whether the platform allows information to be disseminated widely enough to be in the public domain.

That might help him out... the SEC is vague about whether twitter counts - at least in a different context. If they say musk was manipulating the market, it seems like they'd have to admit that its not insider trading to act on a tweet?

[NobleHunter]

I bet it wouldn't be the first time the government argued both sides at the same time.

[Seriati]

Market manipulation is not a joke.  At the time Tesla had been heavily sold short, Elon Musk had repeatedly expressed extreme displeasure with short sellers and effectively told them were going to regret it.  His tweets were designed to pump the price of the security, thereby having potentially billions of dollars of consequences to short sellers.  This is not remotely a victimless crime.

On top of that, this isn't a mysterious or arcane body of law.  It's public companies 101.

He won't be helped out on the twitter front.  Tesla had - in their filings with the SEC - directly disclosed to investors that his account would be releasing official information and directed them to look to it for those disclosures.  He had 22 million followers on that account.

[TheDrake]

Touchy. Sounds like somebody lost money shorting Tesla.

[Seriati]

I wish, not permitted to short, or to actively trade anything.  Just find it ridiculous to claim this isn't egregious conduct.  It's literally something that doesn't occur at 1000's of other public companies.

[NobleHunter]

The idea that twitter is insufficiently public or has limited circulation is ridiculous to begin with. Especially this tweet since it was instantly picked up by the mainstream press. It was almost certainly read by more people than most earning reports or any other official release of information by a company.

[Mynnion]

Musk is stating he had a verbal agreement with a Saudi group.  My guess is that unless the SEC can show otherwise there isn't much of a case.  I have to wonder if the very Tweet he sent may have helped kill the deal assuming that it existed.

[TheDeamon]

Musk is stating he had a verbal agreement with a Saudi group.  My guess is that unless the SEC can show otherwise there isn't much of a case.  I have to wonder if the very Tweet he sent may have helped kill the deal assuming that it existed.

Or the Saudis themselves were also high at the time they agreed(and he made the announcement) at which point they backed out after sobering up.

[TheDrake]

Don't get me wrong, musk should be forced to pay a serious seven figure fine. But I've seen a lot of deals announced that feel through, so to me it matters a lot if he made this up out of whole cloth versus a premature announcement of something real.

[rightleft22]

I'm worried about Musk mental state

[Crunch]

Tesla has never made a profit, nearly 15 years and it’s all losses.

Tesla lost nearly $2 billion in 2017, lost $675 million in 2016 and lost $889 million in 2015.

Musk appears to be mentally unstable. The people investing in his company are crazy.

[TheDrake]

Musk has always been eccentric, but lately he's coming unglued. I mean, calling a rescue diver a pedophile because he didn't like musks half baked submarine idea?

At this point I wouldn't invest in any of his ventures, I wouldn't trust any of his products, and I wouldn't be likely to work at his companies.

[Seriati]

It occurs to me from some of the questions about details above that maybe not everyone is as savvy on the research as I had always presupposed.  Accordingly, here's a link to the SEC's complaint.

https://www.sec.gov/litigation/complaints/2018/comp-pr2018-219.pdf

Though the whole thing has details, the factual allegations start at 12.  They make it pretty clear that the state of the deal was pre-term sheet, effectively, at the handshake after a meet and great, and that Musk presented as almost at the binding commitment stage.  They also make it clear he actual knowledge of problems with what he said that he failed to disclose.

[TheDrake]

Over the weekend, Musk agreed to a settlement with the SEC that requires him to step down as Tesla's chairman and pay a $20 million fine.

Under the settlement, which requires court approval, Musk will be allowed to stay as CEO but must leave his role as chairman of the board within 45 days. He cannot seek reelection for three years, according to court filings.

I'm sure the fine will make all the investors that lost money feel much better.

[LetterRip]

Musk has always been eccentric, but lately he's coming unglued. I mean, calling a rescue diver a pedophile because he didn't like musks half baked submarine idea?

The guy wasn't a rescue diver (widely misreported statement in the press).  The guy apparently lives at a town that is famous for pedophiles to move to.  Musk seems to indicate that he had some investigation work done, and that was the basis of the statement.

I'm sure the fine will make all the investors that lost money feel much better.

Any investors who lost money, will be part of investor lawsuits.  The settlement has significantly increased civil suits likelihood of success.

Grant,

Tesla has never made a profit, nearly 15 years and it’s all losses.

It is clear just as with Amazon, they could choose to be profitable whenever it is convenient, but growth is more important.  The gigafactory and manufacturing automation were extremely expensive but scaled so that they can meet growth expectations.  The only area where they are really underperforming goals is in self driving, but I suspect the ridiculous amounts of data they are gathering will let them be competitive with Waymo relatively quickly.

[TheDrake]

The guy wasn't a rescue diver (widely misreported statement in the press).  The guy apparently lives at a town that is famous for pedophiles to move to.  Musk seems to indicate that he had some investigation work done, and that was the basis of the statement.

Ok, he's a cave diver who didn't do rescues, but still weighed in on Musk's plan. Interviewed because he lives in the area and explored the caves in question extensively.

Musk is still unhinged if in response to a negative comment he hires investigators to find some way to get back at the guy.

[DJQuag]

So Musk is a private entrepreneur who has a public financial image that might not be entirely realistic. He's prone to flying off the handle, throwing wild accusations around, and saying outlandish things on Twitter.

My only question is whether he'll win the 24 or 28 presidential election.

[TheDrake]

And Musk just can't help himself.

Just want to that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!

[DJQuag]

He's just the first. He's watched and acknowledged Trump and he's seen how bull*censored* brings success.

Trump could be impeached tomorrow and he'd go out wildly richer and more successful then he was coming in.

I said it as a joke but this might well be Musk positioning himself as a presidential candidate. He's trying to position himself to where he can call a random person a pedophile for no good reason and it be forgiven as banter.

Trump has been a trailblazer, in ways that some consider great and others consider unforgivable. We all need to remember that other rich *censored* are watching, and whether they're liberal or conservative they'll use the same path to power.

Ya'll who are crowing about Trump, I'd suggest you consider how he does what he does how you would feel if a socialist was doing the same thing.

[TheDeamon]

He's just the first. He's watched and acknowledged Trump and he's seen how bull*censored* brings success.

Trump could be impeached tomorrow and he'd go out wildly richer and more successful then he was coming in.

I said it as a joke but this might well be Musk positioning himself as a presidential candidate. He's trying to position himself to where he can call a random person a pedophile for no good reason and it be forgiven as banter.

Trump has been a trailblazer, in ways that some consider great and others consider unforgivable. We all need to remember that other rich *censored* are watching, and whether they're liberal or conservative they'll use the same path to power.

Ya'll who are crowing about Trump, I'd suggest you consider how he does what he does how you would feel if a socialist was doing the same thing.

Uh, I think there is one, maybe two people on this board who are anything close to enthusiastic about Donald Trump.

The rest of us have simply been pointing to Trump as a symptom of a larger problem regarding the "Politically Correct atmosphere" that has developed across the country, and it's own "take no prisoners" approach to addressing any problems it identifies.

The OTHER thing which gave Trump a huge shot in the arm was the whole matter of Hillary Clinton being the person he ran against, as she was almost the embodiment of that same culture, particularly coming off the heels of the Obama Administration where many people had spent 8 years being called racist simply because they didn't agree with the black guy in office, never mind they didn't give a crap about what his skin color was. (Which isn't to say there weren't people who did care, as there obviously were, on both sides, as the point isn't relevant unless race matters as a decision making criteria for the person raising the issue in the first place)

And "they" still haven't learned, as they've basically run with Hillary's "deplorables" comment with regards to Trump supporters specifically and the Republicans in general since then. Only time will tell, and we'll have "a better picture of things" in November(particularly if Republicans over-perform on some projections), but in the end I'm expecting a mixed result in the mid-term, and the Dems are going to take that to mean "their rhetoric is working" (and the message wasn't received well by the rest of the population because they're just that deplorable), and go into 2020 with the same Song and Dance routine, where they're going to find a very different outcome. Because they still don't understand what is truly going on here.

[LetterRip]

He's trying to position himself to where he can call a random person a pedophile for no good reason and it be forgiven as banter.

This is what he emailed to a journalist,

"I suggest that you call people you know in Thailand, find out what's actually going on and stop defending child rapists, you f**king a**hole. He’s an old, single white guy from England who’s been traveling to or living in Thailand for 30 to 40 years, mostly Pattaya Beach, until moving to Chiang Rai for a child bride who was about 12 years old at the time," Musk wrote. "There's only one reason people go to Pattaya Beach. It isn't where you'd go for caves, but it is where you'd go for something else. Chiang Rai is renowned for child sex trafficking."

http://www.thedrive.com/news/23361/tesla-ceo-elon-musk-doubles-down-on-child-rapist-claims-curses-out-reporter-in-email

I think he was entirely serious in his belief that the man is a pedophile, and may be trying to goad him into coming onto US soil.

Buzzfeed suggests that they have done investigative journalism refuting Musk's claims.  So who knows what the truth is.  Perhaps Musk got bad information, perhaps he confused the man with information he had on someone else, or alternatively perhaps Buzzfeeds investigator got things wrong.  Regardless - it doesn't appear to be an insincere belief.

[TheDrake]

Uh oh. Musk is at it again.

On Feb. 19, Musk tweeted that the company would make around 500,000 cars this year. Four hours later, he tweeted again that he “meant to say” the cars’ weekly production rate would equal up to about 500,000 on an annual basis but that the total car deliveries this year would be closer to around 400,000.

The next day, the SEC asked the company whether the tweets had been reviewed before being published. The first tweet had not been preapproved, the company said. Instead, Tesla’s attorney’s saw the tweet after it was published and then reached out Musk to draft a second, corrective tweet, the SEC said.


“As a result of his failure to comply with the [settlement, Musk] once again published inaccurate and material information about Tesla to his over 24 million Twitter followers,” the SEC said.

[TheDrake]

And now its in court

Mr Musk's lawyer, Alex Spiro, said in his opening statements that the term "pedo guy" was a common insult in South Africa, where the billionaire grew up, meaning "creepy old man", and described the messages as "joking, taunting tweets in a fight between men".

But Lin Wood, a lawyer for Mr Unsworth, tried to show that Mr Musk had meant what he said by citing a separate tweet in which Mr Musk, after being questioned about the allegation by other users, said, "Bet ya a signed dollar it's true." That tweet was also later deleted.

Then, in an email exchange with a Buzzfeed reporter who had contacted him for comments on a threat of a legal case by Mr Unsworth, Mr Musk said, "Stop defending child rapists."

In the packed courtroom, Mr Musk also acknowledged paying $52,000 (£40,000) to a man who had posed as a private detective to dig up information on Mr Unsworth after it became clear he would be sued. The investigator turned out to be a conman, Mr Musk said.

How embarrassing.

[Pete at Home]

Market manipulation is not a joke.  At the time Tesla had been heavily sold short, Elon Musk had repeatedly expressed extreme displeasure with short sellers and effectively told them were going to regret it.  His tweets were designed to pump the price of the security, thereby having potentially billions of dollars of consequences to short sellers.  This is not remotely a victimless crime.

On top of that, this isn't a mysterious or arcane body of law.  It's public companies 101.

He won't be helped out on the twitter front.  Tesla had - in their filings with the SEC - directly disclosed to investors that his account would be releasing official information and directed them to look to it for those disclosures.  He had 22 million followers on that account.

If it hurts no one except for short sellers, I think the SEC should go fish and find something useful to do.  Short sellers don't deserve protection.

[TheDrake]

Short selling is a warning to long investors to cool down and acts as a brake on excessive enthusiasm. There are short sellers manipulating the system as well, I'm not talking about that.

I tracked down the CEO that ran Hostess into the ground (Brian Driscoll), short sold and watched them dip. Got out. Recovered for a while, eventually ended with an accounting scandal, ceased production at one plant, got acquired about 6 years after I first raked some cash out of them. Now, I'm not a market maker - I'm a small fry investor. So I can't make it a self fulfilling prophecy to make a stock go down by the sheer fact that I short sold it.

Bottom line is, there's a reason why investors short sell Elon's stock. His volatility, tendency to overspend, his micromangement techniques, and long term questions about Tesla production rates. There's a reason they picked him and not GM.

[Pete at Home]

Short selling is a warning to long investors to cool down and acts as a brake on excessive enthusiasm. There are short sellers manipulating the system as well, I'm not talking about that.

I tracked down the CEO that ran Hostess into the ground (Brian Driscoll), short sold and watched them dip. Got out. Recovered for a while, eventually ended with an accounting scandal, ceased production at one plant, got acquired about 6 years after I first raked some cash out of them. Now, I'm not a market maker - I'm a small fry investor. So I can't make it a self fulfilling prophecy to make a stock go down by the sheer fact that I short sold it.

Bottom line is, there's a reason why investors short sell Elon's stock. His volatility, tendency to overspend, his micromangement techniques, and long term questions about Tesla production rates. There's a reason they picked him and not GM.

I'm not saying short sellers are evil.  Only that speculation is less deserving of protection than actual investment.  If people gamble on Musk's volatility, then they should just factor in that he may say misleading things just to prevent their unjust enrichment at his expense.

[Seriati]

Pete, not sure I think your position makes sense.  Virtually all parts of the US Securities law are based upon the importance of making truthful disclosures to retail investors.

If Musk's company is overextended and his lies prop it up, it's going to hurt the retail long investors who keep buying into the company when it collapses.  Short selling is part of the market correction mechanism.

Honestly, it way was does allowing an interested person to lie about a public company create a public benefit?

[LetterRip]

The jury decided it wasn't defamation.

https://arstechnica.com/tech-policy/2019/12/jury-sides-with-elon-musk-in-pedo-guy-defamation-case

[NobleHunter]

So it seemed like he failed to prove damages? That's too bad. Though I guess you can't award damages just to teach Musk a lesson. If there was no damages, it's not due to do any care on Musk's part.

[LetterRip]

It isn't clear if "pedo-guy" would be "defamation per se" in this jurisidiction - in which case damages don't have to be proven.  It isn't clear what the jury instructions were on that aspect.  We do know that the jury instructions were that he wasn't a "public figure" or "limited purpose public figure" - so the burden was quite a bit lower for defamation than it would be for a public figure like Musk (don't have to prove "actual malice").

[LetterRip]

Looks like the jury unanimously agreed that 'acquintance' wasn't proven by the plaintiff.

Shusterman told me that the judge gave them clear instructions on how to determine defamation and that it had to clear five points. The main sticking point was that the jury could not determine "acquaintance."

That means: Can a reasonable person who read Musk's tweets know for sure it was about Unsworth? The jury decided that the person couldn't and based their decision mainly on that. They were unanimous on this and moved quickly once establishing (less than an hour).

Musk's defense team led made it a clear argument that Musk's "pedo guy" tweet never mentioned Unsworth by name. That ended up being the key.

https://twitter.com/RMac18/status/1203105107778293761

[LetterRip]

Looks like the from the proposed jury instructions that it was agreed that the standard was 'defamation per se' - so no damages needed to be proven.

https://www.courtlistener.com/recap/gov.uscourts.cacd.723137/gov.uscourts.cacd.723137.129.0.pdf

[Pete at Home]

Pete, not sure I think your position makes sense.  Virtually all parts of the US Securities law are based upon the importance of making truthful disclosures to retail investors.

If Musk's company is overextended and his lies prop it up, it's going to hurt the retail long investors who keep buying into the company when it collapses.  Short selling is part of the market correction mechanism.

Honestly, it way was does allowing an interested person to lie about a public company create a public benefit?

I understand your point. I respect that you disagree with my point but I hope you understand itI respect that you disagree with my point but I hope you understand it.  I exclude speculating short sellers from investors and don’t think they should have the same standing as an actual investor. If musk’s misrepresentations hurt an actual investor, then he should pay for it.

[Seriati]

Pete, there's no way to "isolate" the harm to just short sellers.  Every buyer and seller in the market, long, short, derivative and other wise is harmed.  Every index that includes the company is mispriced, every loan made to the company is mispriced and riskier than was understood.  Every mutual fund and 401(k) that hears his comments and buys in or holds when they should have sold and then suffers the loss when the truth comes out is literally taking a harm, and bringing it down to the level of the little mom and pop.

And honestly, I can't see the reason to hate on short sellers, only a fraction of which are engaging in a pure short sale.  A huge number of these transactions are part of complex deals, where they are covering or offsetting the second half of a long transaction (to simplify what could be going on).  And if someone is really running a strategy where they go long in the five best companies in an industry and short the 3 worst, why would you cheer if they're harmed by lying protecting the shorted companies?

I'm happy to agree to disagree Pete, but I really can't understand the logic, unless all you are saying is that you think that only bad people engage in shorts?

[TheDrake]

Let's be clear. Everybody who bought long because of musky hype was also hurt.

[Pete at Home]

Let's be clear. Everybody who bought long because of musky hype was also hurt.

If that’s true, then my concerns are misplaced. Thank you.

[TheDrake]

Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the possible transaction lacked an adequate basis in fact.  According to the SEC’s complaint, Musk’s misleading tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to significant market disruption.

That jump of 6% was due to investors buying long at a premium. He made them overpay. Meanwhile, investors who bought call options against the new price were also damaged when the price dropped back down. Similarly for people who bought put options as a hedge, and closed out based on the news. It could have been far worse, considering that $420 was way above the $350 or so that it was trading. The market was luckily skeptical about Musk's announcement.