It's very difficult to argue that this wasn't a gross failure in Musks' fiduciary repsonsibilities. Although he's bought his way out of other egregious fuck ups in the past.
The problem with this lawsuit is not that Musk is innocent; the problem is that shareholder lawsuits against companies simply transfer money from the company to the lawyers, and to shareholders who sold their stock between discovering the fraud and disclosing it (a relatively small subset of the supposed 'class'). Shareholder lawsuits against executives would be a better way of policing fraud, but they are uncommon, likely because they are not as lucrative for lawyers.
I'm not taking a position on whether it's 'just', I am simply pointing out that it primarily benefits the lawyers, and may benefit a few former shareholders.
I believe that class-action suits are supposed to benefit the class, both in the judgement/settlement and in changing long-term incentives. Shareholder lawsuits appear to do neither.
If this were a class-action lawsuit by people who were shorting Tesla stock, or owned some option on it, I would agree that it would be serve the purposes of class-action lawsuits (aside from lawyer-enrichment). But it isn't.
I definitely agree that key executives mouthing off does harm the shareholders; the problem is that these shareholder class-actions against companies do not provide a real remedy to the harmed shareholders.
I also agree that courts are allowing these lawsuits to proceed despite hearing objections like mine.
It's not that it's unjust; a shareholder lawsuit is conceptually incoherent.
The idea is that, in your capacity as owner of the company, you sue the company for screwing you over, and it pays a fine to you. But that makes you worse off, because it makes the company worse off, and you own the company.
In the best case scenario, where the suit is costless and 100% of the fine goes to shareholders, the shareholders come out of the suit no worse off -- and no better off -- than they were before they sued.
In any other scenario, they come out worse off.
Imagine that I accidentally hammer my thumb and sue my hammer for the injury. I find it guilty and have it destroyed. How did my situation improve? All that happened is that I'm down a hammer.
Shareholder lawsuits make sense, because the shareholder is seeking redress from a specific harm to them caused by the company. The long-term effect this may have on the company is irrelevant to the suit, especially for publicly-traded companies where individual shareholder ownership is so small as to be immaterial at a per-shareholder level.
Imagine that I accidentally hammer my thumb and sue my hammer for the injury. I find it guilty and have it destroyed. How did my situation improve? All that happened is that I'm down a hammer.
Your hammer is literally just an extension of you so you are just suing yourself. A company is not just an extension of its shareholders. In fact, the whole point of the corporate form is that the business is separate from its shareholders legally, financially, and for all purposes (except for some reason First Amendment rights).
> because the shareholder is seeking redress from a specific harm to them caused by the company
Specifically, the harm they're seeking redress from is a drop in the value of their stock.
And the redress they are seeking is also a drop in the value of their stock.
This is the conceptual problem. Shareholders have not suffered any harm that can conceivably be redressed by a shareholder lawsuit. The only possible effect of the lawsuit is to hurt the shareholders even more than they were hurt before.
> Shareholder lawsuits against executives would be a better way of policing fraud, but they are uncommon, likely because they are not as lucrative for lawyers.
There is an interesting case where they were lucrative for lawyers. The government wanted to discourage "short swing" trading by executives and other insiders. That's a series of trades that includes both buying and selling.
The way they did this was the brilliant rule 16(b). That rule says that officers, directors, and people who own more than 10% of the shares in a company must turn over to the company any profits from short swing trading of the company's stock that occurs within a 6 month period.
So if Bob the CEO buys company stock at $100/share and a month later sells it at $120/share, Bob owes the company $20/share.
What makes it brilliant is:
1. If the company doesn't act and ask Bob to cough up that $20/share, and shareholder can sue Bob to make him do so,
2. If Bob loses, Bob will have to pay the attorney fees of that shareholder,
3. The shareholder did not have to be a shareholder at the time of Bob's trades. They only need to be a shareholder when they file the suit.
The people that 16(b) applies to are the same set of people who are required to publicly report their trades. There were law firms that would get those public reports in machine readable form, have a program go through them looking for people who profited from short swing trades, buy one share in those companies, and then sue. They easily would win, and Bob would have to pay his profits to the company, and the lawyers got to collect their fees from Bob.
And that's not even the worst of it for poor Bob. Suppose Bob had bought at $100, then sold at $90. If that's all he did, no problem because he had a loss, not a profit. But suppose that Bob then bought at $80 and sold at $70. Bob has suffered a loss of $20. No profit, so at least no 16(b) problem, right?
Not so fast. Suppose all four of those transactions took place inside of 6 months. The short swing profit calculation doesn't really care about timing. It just looks for the highest sale price and lowest purchase purchase price in the window and matches as many shares up at those prices as it can. Then do the same thing for the remaining shares, and so on, until as many shares as possible have been matched up.
Bob's buy $100/sell $90, buy $80/sell $70, which is a $20 loss according to Bob's bank account, would be seen as a $10 profit--the buy $80 would be matched with the sell $70. Bob ends up coughing up $10 to the company, on top of the $20 he actually lost, and whatever he has to pay the lawyers who sue him if it comes to that.
This turned out to be so effective at stopping officers, directors, and 10% shareholders from making money off of these short swing trades (or even from breaking even) that they largely stopped even trying--and with no enforcement cost to the SEC. Those people, if they want to trade in their own company's stock, have to pick a direction (buy or sell) and stick with that. If they want to change direction, they need to wait more than 6 months.
Shareholder lawsuits provide money to all those shareholders who were damaged as a result of the tortious action. In this case, that includes shortsellers, current and former shareholders who sold their shares, and current and former shareholders who may have purchased their shares on the false news and then sold them for losses when the truth was revealed.
Yes, lawyers make a lot of money compared to individual shareholders. But in a class-action lawsuit, they make less overall money then they would if each shareholder had their own lawyer, and it costs the company far less to defend one shareholder class action then several thousand (and this is the entire point of class actions).
Shareholder class-action judgements do take money from the company, and give it to both the shareholders, and their lawyers. The problem is that from the point of view of a long-term shareholder, it is taking money from one pocket, and putting it in the other (after compensating the lawyers for their trouble). Short-sellers will almost certainly not be in a class of shareholders, as they only hold the stock for a very brief period before selling it, and then only for a brief period before returning it to their counter-party; if they hold it longer, they are not short-sellers.
Among the shareholder class, there are a few different categories, each wins or loses a different amount due to the class-action:
1) Those who owned the stock at the time of the misrepresentation and continued to own it until the judgement/settlement. These people lose their portion of the lawyers' fees
2) Those who owned the stock at the time of the misrepresentation and sold it before the lawsuit ended. These people benefit from the judgement/settlement amount, minus lawyers' fees.
3) Those who did not own the stock a the time of the misrepresentation, but bought it before the end of the lawsuit. These people lose however much group 2 gained, in addition to some legal costs.
Out of the three groups, 1 and 2 are part of the class, but only 2 benefits from a successful complaint.
It's kind of dividends but without approval from majority of shareholders and bondholders. Company draws down credit line, shareholders receive cash, lawyers receive their %. Shareholders still have same amount of shares, win-win for everyone.
The situation with Elon is kinda complicated. I almost never side with his haters (short-sellers, Brooklyn socialists etc) but there’s no doubt he does some objectionable things from time to time.
Long before the more recent controversies I remember probably the first thing that turned me off a bit was when someone wrote a critical piece about a launch event and Tesla cancelled his car purchase.. (Incidentally I looked up that incident and saw PG kinda didn’t like it either https://twitter.com/paulg/status/694892884508553216?s=21 )
> I almost never side with his haters (short-sellers, Brooklyn socialists etc) but there’s no doubt he does some objectionable things from time to time.
This may be one of the oddest sentence to read on HN. What are you talking about?
Also, regarding canceling someone's car purchase for writing a critical piece, why do you see that as a bad thing? or a good one?
I guess this shows that I spend too much time on twitter but there are big conflicts on there about things he does all the time; and he is very polarizing, with legions of fans and detractors. Short sellers and left wing types are big subcultures among prominent Elon detractors.
I think a lot of us would prefer to maintain a cognitive Chinese wall between the companies we deal with and our underlying opinions about them, and would prefer that the companies have the same attitude towards us. I'd like to be able to criticize specific products and policies by Google, for example, without putting my entire Google account at risk. It seems like that's how it works with Google or even with (post-Jobs) Apple, and that's a good thing.
The last time I bought a new car, though, I filled in the manufacturer's survey in painstaking detail, calling out points I liked, aspects I didn't like, and a few things I considered ridiculous or unacceptable. Apparently my responses not only made it back to the local dealer, but earned me a reputation on the sales floor as a dissatisfied customer -- or worse, an unsatisfiable one.
It never occurred to them that if I were really annoyed or disappointed in the car, or had any kind of personal beef with its manufacturer, I wouldn't have wasted time filling out the survey in the first place. I answered the survey honestly and comprehensively because I plan to buy more cars from them in the future and would like my input to be considered.
Companies need to understand that the opposite of love isn't hate, but indifference. When someone takes the time to criticize you in detail, you don't have to take it as a declaration of war. You can always ignore them if you don't feel their input has merit. From hearing all these anecdotes over the years, I'm under the impression that Tesla takes things a little too personally.
If your overall impression of a car was negative before you got the car, surely you wouldn't go through with the purchase? There must be cars that you have a generally positive view of and therefore want to purchase, no? There are a lot of cars...
So it's "kinda complicated" because... you've tagged people disagreeing with Musk as "Brooklyn Socialist". And such "Brooklyn Socialists" are, apparently, people you can not imagine ever agreeing with, on anything.
But sometimes, you also disagree with Musk. Which should be impossible, logically, if the above were true. Which is causing some sort of cognitive dissonance.
And your current thinking on this breakdown in everything you hold to be true is that Elon Musk is the rare subject that's not quite as easy to judge within your simple good/evil framework that usually works so well.
Have you considered that maybe it's your thinking in tired clichés that's giving you all the trouble here? Maybe Elon Musk is right on some things, wrong on others? Maybe "Brooklyn Socialists" aren't always wrong on everything?
I believe I know some people you might file under that term, and some of them like cats, others don't, and there's one who doesn't care either way. Unless you categorically deny the existence of cats, it would seem impossible for you to disagree with all of them.
No, it's the other way around--I was talking about online communities that are primed to say vacuously negative things about Musk. I'm saying I never quite agree with the gratuitous pile-ons, but sometimes there are legit issues with his behaviours.
It is interesting to note that the price Musk mentioned was $420 per share while the stock closed at just under $730 per share today and was as high as $969 (EDIT: actually more like $900, see computerex's comment below) per share before the Coronavirus selloffs began. I point this out not to defend Musk (he is often an idiot, especially on social media), but to point out that the people still angry about this are likely Tesla shorts and day traders. Anyone who is long on Tesla likely couldn't care less.
Because it is a shareholder lawsuit, supposedly claiming some damages to the Tesla shareholder, who happens to be doing very well. The non-shareholder community is the one at loss and would want restitution for their "damages," but Tesla, Inc. really has no responsibility towards them beyond the general rules and regulations, i.e. SEC et al complaints. TL;DR: if you bought or held TSLA due to that tweet, well, it's already above that price+market gain.
Yes, you can tactically become a shareholder and file suits as some people do all the time. You miss earning you get hit by a shareholder lawsuit every time. This is not a rare thing, but also does not necessarily imply they have any reasonable claim to any damages. Could be just leeching.
The distinction between this and the SEC matter that was settled is that SEC is supposed to care about the integrity of the market at large, not just Tesla, Inc. shareholders doing well at the cost of other players in the market that were misled. That's a much stronger basis to argue for damages.
Maybe I'm being unclear. I'm wondering why we shouldn't care about damages to day traders. Is the suggestion that those types of investors are doing something bad? I don't know anything about investing, but wouldn't they just be people who do quick trades?
"We" should, and "we" do, through SEC and other regulators or criminal investigation against the executives. That matter, however, is already settled, for better or worse. The suit at hand is on the basis of Tesla, Inc.'s fiduciary duties to its shareholders and it is hard to imagine Tesla did not do well by its shareholders at least taking a ~one-year lens.
Shareholder litigation isn't regulatory issue, it is totally separate, has different statutes of limitations and has no bearing on what Elon settled with the feds.
> Tesla, Inc.'s fiduciary duties to its shareholders and it is hard to imagine Tesla did not do well by its shareholders at least taking a ~one-year lens.
Tesla's stock went down below 200 in May of 2019, well after the tweet and skyrocketed after that. The long term performance of Tesla stock is not the result of that tweet in August of 2018 and that tweet was not representative of creation of long term value. If Musk hadn't tweeted that day, I would bet long-term performance for Tesla shareholders would have been identical.
If Musk actually had funding secured and did take the company private, recent share prices might even indicate that would have been against the long term interests of Tesla shareholders as they were betting on the long-term results of Tesla's investments in manufacturing and would have been deprived of the gains from that bet that they are seeing now.
It doesn't make them bad. It makes them disingenuous. This Tweet did not do any damage to people who has held onto Tesla stock. It did damage to short term arbitrage seekers that were trying to make a profit by being the first to act on the news. These people were at one point shareholders, but they likely weren't shareholders before the Tweet and likely aren't shareholders now. I don't and I assume the general public doesn't have a lot of sympathy for that type of trader.
The definition of shareholder doesn’t require that somebody hold the shares for a given amount of time. It’s clear that you don’t have sympathy for people who aren’t long on Tesla stock, but that doesn’t change the fact that they were shareholders, and they were misled because Musk made false statements about the finances of his company to the public.
People who don't have stock in Tesla and profit when the stock price goes down think that Musk doing things that make the stock price go up is bad. People who have stock in Tesla and profit when the stock price goes up aren't going to be particularly mad when Musk makes the stock price go up, and they're the only ones who get to participate.
Holding a short position is similar to having a friend with a spare old car. Their lazy kid is going to get a job and their license eventually, and they definitely want to have the car for that, but who knows when that will be. You buy it for $3,000, promising they can have the car back whenever they want. But you sell it immediately to a third party. You're planning to buy them a replacement car on the used market when the car depreciates (they'll never know the difference), hopefully next year that old gas guzzler engine is even less popular and that model year's styling is considered even more dated. When your friend asks for the car back, you'll buy one for $2,000 and make a tidy profit! What happened to these folks was that the car didn't depreciate from $3,000 to $2,000 like they expected it to, that model had the lead role in a blockbuster movie and overnight, it became a coveted classic car. Turns out there are only a couple hundred still on the road, and now, if your friend asks for it back, you'll have to go to a big auction and pay $50,000 to replace it, suffering a loss 4700% greater than the profit you expected to make.
This is a lawsuit for car owNers, not car owe-ers. The owners are $47,000 richer, they don't want to sue the car manufacturer, regardless of any underhanded dealings that got it that movie role.
If you were a shareholder who sold because you saw the SEC seeking enforcement action, your actions were directly impacted by Elon's speech, and you can argue you have losses.
I am sure there will be some arguments along that line or similar, so we will see, but the situation would be entirely different had the stock been at say, $220 today.
It is a civil lawsuit and it sure is material as far as quantifying damages is concerned. But why speculate when we can just wait and see the outcome.
Again, I agree that your post above might serve as an avenue to claim some damages that a judge would agree to, but to say stock price today is immaterial is just plain wrong. If the stock price had dropped to $100 today, it would have been likely that all shareholders could make a valid argument to a claim, but now at the very least one has to demonstrate that they were a shareholder at the time of the tweet, and they have taken a certain action that hurt them based on that tweet.
Elon Musk encourages his supporters to view him as a wrongly persecuted underdog, victim of numerous nefarious conspiracies from established industries. Claiming that his critics are seething short sellers is part of this.
I am short TSLA and I wish those people stop with the lawsuits and let this stock explode so I can add at even more ludicrous prices. Elon has already done so much to discourage fundamental analysis and price discovery of this stock.
I hope in that situation you have the cash on hand to cover those margin calls. And even if you do, a lot of shorts would be getting screwed by behavior that is unethical and illegal. I'd rather people not lose money because of blatant lies by the ceo than have the stock shoot up unchecked to fulfill your little fantasy
You're right, it is selfish, such is the nature of capital markets. I'm trying to exploit other's mistakes.
Shorting Tesla without hedging (or some good covering protocol) is a fool's game; no margin calls for me. There's a reason why the IV is ludicrous too.
And I don't think that Tesla is a "bad company", it's merely has substantially overpriced securities.
But what I find truly horrifying is how okay everyone seems to be with highly unethical and dangerous behavior when things are going up. Not just in Tesla, but in so many corporate offices.
Of all the companies to short for me Tesla is one I really hope beats you. They've managed to drag the polluting car engine industry into the future and are continuing to lead the way. Climate change is about to threaten humanity and kill millions. Tesla and Musk are one of the few who are making positive steps to try and rectify this. I hope your money makes you happy if Tesla gets destroyed and sets back reducing carbon in that sector by another 10 years.
The stock is not the company, and the company is not the technology, and the technology is not the charismatic CEO. The EV technology is likely here to stay regardless of where that "chart" continues, or at least is much more dependent on the physical realities of the technology than it is on the hype.
Amazon grew so big in part because of the dotcom bust which took to the grave uneconomic players from their competition horizon.
In this case basically all of those things are wrong.
Up until now (and possibly still now), the fate of Tesla has been in their ability to raise capital to develop technology and build factories. They raise capital by selling shares or borrowing money using their ability to issue shares as collateral, so a high share price is a prerequisite to their ability to raise enough capital and therefore exist as a company. Meanwhile the charismatic CEO has been a major contributor to increasing the share price.
Without the charismatic CEO they don't have a high share price, without a high share price they don't have capital, without capital they don't exist. At some point they'll be past that dynamic, but they weren't always, and maybe they're still not.
And it's an open question whether the existing auto industry would pick up the ball on electric vehicles if Tesla ceased to exist. It's not hard to argue that they're only doing it now because Tesla is forcing them to -- they could have started 30 years ago and they didn't -- and they don't seem particularly enthusiastic about it even now. They also have a lot of incentives to avoid it, because it requires investing a lot of money in new R&D and retooling factories, and then giving up very lucrative service charges since electric drivetrains are much simpler and require less maintenance. And if Tesla imploded it would be easy for anyone inclined to succumb to those incentives to point to it as an indication that electric cars weren't a good market to be in, as a justification for not entering it.
So right now the world kind of needs Tesla to succeed, at least until they've forced most of the incumbents to release competitive electric vehicles, which they haven't actually done yet.
Why do you think then that EVs have a "profitability cliff" after which it will just magically work, bubble capital access or no bubble capital access? To me it sounds like you're presenting a case for why EVs are not the solution.
To rephrase the question: what will change in the structure of reality that will make EVs a great business?
To guide the answer: me currently being able to type it comes from decades of silicon semiconductor manufacturing improvements (none of which were bubble-funded; silicon is often not a massively profitable business but profitable; though those were govt bootstrapped).
> Why do you think then that EVs have a "profitability cliff" after which it will just magically work, bubble capital access or no bubble capital access?
When Tesla started out, there was no model for this. Nobody had ever made an electric car that was reasonably competitive with gasoline powered cars. Nothing before Tesla was that fast with that much range. They might have spent billions of dollars trying to develop it and failed. It's hard to raise that much money when there is that amount of risk. But once you're actually doing it, the risk is proved out and there is a known viable model for success and all that's left is to mass produce the design. So now they've essentially done that for sedans and we're waiting on trucks.
> To rephrase the question: what will change in the structure of reality that will make EVs a great business?
Have a look at oil prices right now. They're a lot lower than they were end of last year. That's what a reduction in demand does. The reduction in demand came from the coronavirus, but you get a similar effect from replacing a relatively small percentage of vehicles with electric ones, because they use 0% as much oil as ICE vehicles.
In theory low oil prices are bad for electric cars, but they're also bad for oil producers, who are then making dramatically less money. And the amount of money they're making is the primary lobbying force against having a carbon tax. The other impediment is the pinch the consumer would feel at the pump, which low oil prices also address, as does a larger number of consumers driving electric cars. Take all those things together and it becomes a lot easier to get a carbon tax.
So you build enough electric cars to make the oil industry bleed enough that they're no longer strong enough to resist the need of everyone else in the world to kill them, they are then killed, and ~100% of new cars become electric. Which makes electric cars a good business to be in.
The stock price is based on the company's activity and future potential, not the other way around.
If Tesla continues to work towards a fossil fuel-minimized economy (and to my part, I hope they do), then their stock price will demonstrate this.
If you think investors will lose confidence and back out of Tesla because "the shorts", then they're demonstrating their faith (or lack of it) in the market, not the company.
Either way, a lot of this sounds like "we don't like the way _they_ play the game". Sucks to be a (regulated) free market, huh?
Then appropriate remedies should be pursued, but in what way have Tesla shareholders as a class been damaged? In the net, I would wager that Tesla shareholders are still quite happy with Elon at the helm.
That accountability is more likely to come from the SEC's previous punishment than this lawsuit. It seems like many of the people here are acting as if this shareholder lawsuit is the only recourse against Musk's actions. My original comment was made in the context of that punishment already being handed down.
That punishment was a slap on the wrist compared to how much actions like this poison the public markets. Knowing the SEC won't act with real force in these situations will encourage penny stock CEOs and other characters to do the same thing.
Company resources have to be spent on this crap, soley because of his tweet. If I were a shareholder, I would be tired of the wasted resources spent cleaning up after his twitter account.
If you don't like how he runs the company don't be a shareholder, it appears you aren't. It'd be hard to think that Tesla would be what it is without him. In fact losing him, is probably the biggest risk they face.
I disagree because (1) I don’t expect Twitter as an official medium for disclosing fiduciary information (2) There were no correlating news articles and (3) the obvious joking signal of “420”.
When it became clear the "funding secured" tweets were a lie and that the SEC was seeking an officer & director ban against Elon Musk many people sold their stock and lost money.
It's not OK for directors of a company to make materially false statements to their shareholders and if they do they can (and deserve to) get sued. It's a bit silly to talk about people being "still angry about this" when between filing the lawsuit and today Tesla has been close to bankruptcy multiple times.
Exactly. Can anyone name another CEO who could pull this stunt and wouldn't be immediately fired by his board? This whole ordeal exposed the complete lack of corporate governance in Tesla.
Can you name any other CEO who could pull the success Tesla had thus far? It comes in a package--you cannot pick and choose. If the board (or SEC) legitimately thought a better person could run the company, the outcome may have been different.
I'm not sure I would call Tesla a success. The company has racked up GAAP losses of close to $7 billion since going public, and has never made an annual profit. Whatever Elon Musk has created, it doesn't look anything like a sustainable business.
When you picked WeWork out from the pool of many thousands of companies valued at 40 billion usd or more two years ago, you had the benefit of hindsight, which we don't have on the question of whether Tesla is currently overvalued by the stock market.
I guess the people that lost that moment would be able to recoup. Doesn't matter what happens 2 years later to the stock if I lost $xx million due to his (questionable) tweet.
> was as high as $969 per share before the Coronavirus selloffs began
Just to clarify, the stock hit the $969 high very briefly and dropped closer to what it is now far before any of the Coronavirus related moves in the market.
You are right. I was eyeballing the daily stock chart. That $969 peak was a few weeks before the general market selloffs began. However Tesla was right around $900 when the market started to dip in late Feb so my general point still stands.
Elon wants fast growth, which is great, but has a lavish lifestyle using borrowing money on his volatile shares.
Most people can't even handle the volatility of Tesla shares emotionally, when it's leveraged even more, of course Elon get very frustrated when the stock goes down.
He should have just waited a bit more with his billionaire lifestyle that he deserves.
You look at the transaction end-to-end, and what the intention behind it is. Don't get stuck in the technicalities, as that's the cause of many issues we see today.
Plenty of people long Tesla via calls are also included in this lawsuit. Claiming a buyout offer of $420 a share takes all of the calls above that figure to zero
> It is interesting to note that the price Musk mentioned was $420 per share while the stock closed at just under $730 per share today and was as high as $969 (EDIT: actually more like $900, see computerex's comment below) per share before the Coronavirus selloffs began.
Yeah, and time doesn't mean anything in markets, so that's somehow relevant.
> I point this out not to defend Musk (he is often an idiot, especially on social media), but to point out that the people still angry about this are likely Tesla shorts and day traders.
That...doesn't even remotely follow from the facts you cited. For one thing, a CEO repeatedly flouting securities rules and thereby triggering sanctions against the firm probably means that the current market price is less thanot would be, ceteris paribus, without that occurring. Just because the stock price has gone up since that event doesn't mean that the event did not negatively impact long positions compared to everything else being the same except that event.
What Musk did was certainly unethical, but it highlights how dumb the stock market really is. At what point is the investor expected to take responsibility for bad investments based on speculation?
Nobody forced Musk to run a highly leveraged company that will collapse on itself when it runs out of cheap financing. At some point the music will stop.
And nobody forced investors to buy overpriced Tesla stocks.
I'm not going to bat for Elon here. I just think it sets a pretty bad precedent for investors to be able to sue a person when they make bad investments based on that person's social media ramblings.
If Elon or someone connected to him profited off the ordeal, then there might be something here. I haven't seen anything to indicate that, though.
I never said the lawsuit wont be successful. I just said I think it is a bad precedent.
IANAL, so I can only offer amateur speculation regarding whether Elon's actions were illegal. His actions do not align with any of the "type of securities fraud" listed on that page, but they do fit within the broader definition given at the top of the page.
The bad precedent is to let him get away with a slap on the wrist because soon enough you'll have ceo's left and right pumping and dumping on twitter whenever it's convenient.
What have I said to indicate I'm a fan of Elon Musk or Tesla? I've described his actions as "irresponsible" and "unethical" several times in this comment thread.
I'd appreciate if you would refrain from associating me with groups you do not like just because you disagree with me. It's not constructive and it discourages people from challenging the thoughts of the groups they prefer to associate with.
The part where you say that Elon Musk getting sued for fraud is a "bad precedent". Or the part where you characterize his fraud as merely "irresponsible" and "unethical".
Little in this entire discussion has been productive because Elon's fanboys are all delusional.
My cover is blown! How could I be so careless? I made the classic mistake of characterizing Elon as anything other than a stupid, egotistical tyrant! Everyone knows there is no such thing as shades of grey and popular figures like him can only ever be thought of as pure good or pure evil!
You may have unmasked me, but we'll see who's laughing 10-20 years from now when I'll be rescuing children from caves on mars... and driving electric cars through hyper tubes... and... something about flame throwers!
Seriously, though. Here's my real thoughts on Elon Musk. Keep in mind that I don't pay much attention to him, so this is probably not a great assessment. It's just my real impression of the guy.
I think he is a billionaire stuck in his teens. He throws money at things just because they sound cool and that has played a huge part in making him famous. He's reckless, but his celebrity status ensures he will always stay a billionaire. It also ensures he will have plenty of clueless fans and plenty of angry anti-fans. Most people do not fall into one of those camps, but those who do are often quick to let you know it.
I think he's irresponsible, he has a big ego, and his celebrity/billionaire/CEO status means there is serious potential for him to cause a lot of damage. He has done a lot of stupid things, but so far the collateral has been pretty small. I don't think it's fair to say everything he's done is bad, but you could spend an eternity debating how much good he's directly responsible for.
He doesn't strike me as an idiot, but he also doesn't seem especially smart. I imagine he thinks of himself as pretty smart, but that seems to be a common trait among billionaires. I'd guess very little of his companies' success can be directly attributed to him. He comes across more as a rich investor and figurehead than a manager.
Speaking of his companies, they also get a lot of media attention. Electric vehicles, autonomous cars, and space exploration are interesting subjects, but Tesla and SpaceX aren't the only names in those markets. Their brand popularity is just so huge that many people struggle to disassociate those companies from the technologies they work on.
From what I've heard, the work conditions at Tesla and SpaceX are bad (long hours, high stress, poor job security) so I have no desire to work for either. From a customer perspective, I hear Tesla vehicles are very costly to maintain so I'll be cautious about Tesla if I every find myself looking to buy an EV. I don't currently trust self-driving car technology, so that's not even a consideration for me right now.
Like I said, I don't pay much attention to Elon or his companies. I only commented on this one because I thought it was a good example of how dumb the stock market is. It encourages short-sighted behavior from publicly traded companies, it's painfully easy to manipulate, and I think it's dangerous how far some are willing to go to try and make it safe for investors.
Elon tweeted that he was "considering taking Tesla private". It clearly was not a done deal. Evaluations were made based on speculation that Elon would follow through. He obviously did not. The stock value temporarily spiked and a lot of investors looking to profit off the ordeal ended up making bad investments and lost big. At the end of the day, the stock market is akin to gambling and sometimes you loose.
Elon's actions were irresponsible at best, but I think suing him sets a bad precedent. There doesn't seem to be any evidence of insider trading. It seems to me like some investors are just mad that they lost money because they put too much stock in Elon's twitter feed.
"Tesla investors and others should note that we announce material information to the public about our company, products and services and other issues through a variety of means, including Tesla’s website, press releases, SEC filings, blogs and social media, in order to achieve broad, non-exclusionary distribution of information to the public. We encourage our investors and others to review the information we make public in the locations below as such information could be deemed to be material information."
"For additional information, please follow Elon Musk’s and Tesla’s Twitter accounts: twitter.com/elonmusk and twitter.com/TeslaMotors"
> He said "funding secured", the board knew nothing of what was going on and scrambled to make it retroactively true.
Yeah, that's pretty irresponsible. I don't see how it changes things, though.
IANAL, but I suspect there's a difference between "follow Elon's twitter because he might release material information there" and "everything Elon tweets is material information".
I have no desire to defend Musk or Tesla. The practice of distributing official information via social media posts is pretty sketchy. But that such an arrangement is even possible only continues to highlight how dumb the stock market is. The more I learn about this, the more it sounds like investors playing with fire and whining when they get burned.
Yikes, I was afraid there was a new tweet, but this is still the infamous 2018 one.
Still, I'm a bit confused -- as much as I think he deserved to be fined/punished for it, the $20 million SEC fine did that.
It seems like he should be subject to an SEC fine or a shareholder lawsuit, but not both -- isn't it redundant? I would assume that the SEC fine was calculated as an "appropriate" punitive amount -- not a punitive amount minus what they expected a shareholder lawsuit would also result in?
$20M is probably at least two orders of magnitude less than the total losses people suffered as a result of this lie. It is almost certainly not "appropriate" in the damages sense. It may be a sensible fine ($1k may be a sensible fine to someone who has no money); it does not cover damages whatsoever.
Dude, it was a fraud, in the most speedy "fraud segment", that is M&A. It's so speedy because M&A directly links a security against a price ($420), but it was all a lie. It really is just a robbery.
The shareholders that were supposedly wronged didn't get anything from the SEC action.
It's comparable to criminal and civil law existing side-by-side: if you run a red light and someone gets hurt, you'll be fined for the traffic violation. But the victim is also going to sue you for medical expenses, work income missed, and compensation for any suffering.
Of course any compensation here is going to be paid by Tesla to shareholders of Tesla, who own the company anyway. It might make a difference for individuals based on when they are/were shareholders and when not. But absent such effects, it's a really strange system.
I wonder if Elon Musk will join the lawsuit. He's the single largest victim here, after all. That would be fun.
It’s common for entities to face legal action in multiple theaters from different entities stemming from the same events. A well-known example is OJ Simpson first fighting a criminal case, and later a civil case.
Here, the SEC is an administrative entity (part of the executive branch) with the power to levy fines. Now shareholders are filing a civil suit for damages. Sometimes, the SEC will participate in a multi-party settlement that can resolve administrative, civil, and even criminal charges at the same time - but that didn’t happen here.
$20 million for someone with a 11 figure fortune is a speeding ticket. We have to remember that he harmed people with hundreds of millions at stake on the price of the company by faking the largest corporate buyout in the history of the stock market. This kind of blatant fraud needs to be assessed extremely punitively.
Good luck to the "shareholders" (I assume they are not long) trying to prove Elon was defrauding them. All shareholders now have a hugely better value than before he tweeted that.
What part of "I have secured funding for taking Tesla private" was accurate and honest? If he had not secured funding, how was his statement not deceptive?
And if you sold shares based on his statement, OR as a result of the enforcement activities that came after, then you lost potential earnings, as a result of (reacting to) his statement.
Martin Shkreli's investors made a profit. But he was still guilty of running a fraudulent pyramid scheme to get them that profit.
People don't seem to understand that the current share price of Tesla is largely irrelevant to this case. What matters is the harm to the shareholders (or former shareholders) at the time the 420 tweet was still relevant (i.e., back in summer 2018).
> What part of "I have secured funding for taking Tesla private" was accurate and honest?
We don't know. He might have chosen to not disclose his discussions with other people.
> If he had not secured funding, how was his statement not deceptive?
He might have meant it in earnest. For fraud, surely he must have had the intention to profit from it personally at the expense of shareholders?
> And if you sold shares based on his statement,
Who would have done that and with what reasoning? Why would you sell for a lower price if you believed you'd get $420 very soon? That's a silly notion.
> a fraudulent pyramid scheme
A pyramid scheme is by definition a system where most (i.e. the last) investors get screwed, i.e. they don't make a profit.
> He might have chosen to not disclose his discussions with other people.
Including the SEC?
> He might have meant it in earnest.
You can be as earnest as you like and still be capable of making statements that are factually incorrect. As to your previous point, one would presume that an absolute defense against the SEC's charges about making materially false statements would be to show that said statements were not, in fact, materially false. That didn't happen though.
> For fraud, surely he must have had the intention to profit from it personally at the expense of shareholders?
You mean the hope that the share price would go up, with him as a large shareholder. "At the expense of shareholders" would include "shareholders who may have bought, sold, or changed their strategies, or not, based on Mr Musk not making said statements as a matter of fact, that weren't".
He was making a joke and some money-havers were to dumb to spot it. Suing Musk over a tweet is like me suing Forbes about their forecasts, and I'm a nobody.
I occasionally see this sentiment regarding investment. It's terrifying how some people believe that such dramatically unethical crimes are totally fine in these less direct contexts where a small number of powerful people hurt many "stupid" people who "deserve it". E.g. you see the same attack made on people struggling with student loans, based on a simplified version of reality that hyperfocuses on the personal responsibility of people lacking power.
"U.S. District Judge Edward Chen ruled on Wednesday that shareholders could try to prove Musk intended to defraud them with his Aug. 7, 2018 tweet and follow-up messages about plans for his Palo Alto, California-based company."
Placing my bet that he did not >intend< to defraud them. Going to cost them a pretty penny to try to prove something that didn't happen.
This is a civil suit, they only need to prove that it was more likely than not that Musk intended to defraud investors.
Given that Musk's salary is based on the value of the stock, and that Tesla needed the stock to increase in value to avoid financial triggers, there is already sufficient pro forma evidence to satisfy the intent prong.
Unlike in criminal court, the true burden will be on Tesla/Musk to show that they did not intended to defraud investors. Given Musk's history of making misrepresentations, this will be a difficult task and it is very likely they will settle out of court instead of take this to trial.
And that's how you know the situation is improving in the world. The shorts are back to manipulating TSLA through their lapdog - mainstream press. The lawsuit is a nothingburger that will go nowhere. It's kind of difficult to prove shareholder injury if the stock doubled since then.
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[ 3.1 ms ] story [ 268 ms ] threadI believe that class-action suits are supposed to benefit the class, both in the judgement/settlement and in changing long-term incentives. Shareholder lawsuits appear to do neither.
I also agree that courts are allowing these lawsuits to proceed despite hearing objections like mine.
The idea is that, in your capacity as owner of the company, you sue the company for screwing you over, and it pays a fine to you. But that makes you worse off, because it makes the company worse off, and you own the company.
In the best case scenario, where the suit is costless and 100% of the fine goes to shareholders, the shareholders come out of the suit no worse off -- and no better off -- than they were before they sued.
In any other scenario, they come out worse off.
Imagine that I accidentally hammer my thumb and sue my hammer for the injury. I find it guilty and have it destroyed. How did my situation improve? All that happened is that I'm down a hammer.
Imagine that I accidentally hammer my thumb and sue my hammer for the injury. I find it guilty and have it destroyed. How did my situation improve? All that happened is that I'm down a hammer.
Your hammer is literally just an extension of you so you are just suing yourself. A company is not just an extension of its shareholders. In fact, the whole point of the corporate form is that the business is separate from its shareholders legally, financially, and for all purposes (except for some reason First Amendment rights).
Specifically, the harm they're seeking redress from is a drop in the value of their stock.
And the redress they are seeking is also a drop in the value of their stock.
This is the conceptual problem. Shareholders have not suffered any harm that can conceivably be redressed by a shareholder lawsuit. The only possible effect of the lawsuit is to hurt the shareholders even more than they were hurt before.
They can be filed by shareholders who were harmed by prior corporate account. Not sure for this concept is so hard for people to understand.
TLDR we're taking about different groups of shareholders.
There is an interesting case where they were lucrative for lawyers. The government wanted to discourage "short swing" trading by executives and other insiders. That's a series of trades that includes both buying and selling.
The way they did this was the brilliant rule 16(b). That rule says that officers, directors, and people who own more than 10% of the shares in a company must turn over to the company any profits from short swing trading of the company's stock that occurs within a 6 month period.
So if Bob the CEO buys company stock at $100/share and a month later sells it at $120/share, Bob owes the company $20/share.
What makes it brilliant is:
1. If the company doesn't act and ask Bob to cough up that $20/share, and shareholder can sue Bob to make him do so,
2. If Bob loses, Bob will have to pay the attorney fees of that shareholder,
3. The shareholder did not have to be a shareholder at the time of Bob's trades. They only need to be a shareholder when they file the suit.
The people that 16(b) applies to are the same set of people who are required to publicly report their trades. There were law firms that would get those public reports in machine readable form, have a program go through them looking for people who profited from short swing trades, buy one share in those companies, and then sue. They easily would win, and Bob would have to pay his profits to the company, and the lawyers got to collect their fees from Bob.
And that's not even the worst of it for poor Bob. Suppose Bob had bought at $100, then sold at $90. If that's all he did, no problem because he had a loss, not a profit. But suppose that Bob then bought at $80 and sold at $70. Bob has suffered a loss of $20. No profit, so at least no 16(b) problem, right?
Not so fast. Suppose all four of those transactions took place inside of 6 months. The short swing profit calculation doesn't really care about timing. It just looks for the highest sale price and lowest purchase purchase price in the window and matches as many shares up at those prices as it can. Then do the same thing for the remaining shares, and so on, until as many shares as possible have been matched up.
Bob's buy $100/sell $90, buy $80/sell $70, which is a $20 loss according to Bob's bank account, would be seen as a $10 profit--the buy $80 would be matched with the sell $70. Bob ends up coughing up $10 to the company, on top of the $20 he actually lost, and whatever he has to pay the lawyers who sue him if it comes to that.
This turned out to be so effective at stopping officers, directors, and 10% shareholders from making money off of these short swing trades (or even from breaking even) that they largely stopped even trying--and with no enforcement cost to the SEC. Those people, if they want to trade in their own company's stock, have to pick a direction (buy or sell) and stick with that. If they want to change direction, they need to wait more than 6 months.
Yes, lawyers make a lot of money compared to individual shareholders. But in a class-action lawsuit, they make less overall money then they would if each shareholder had their own lawyer, and it costs the company far less to defend one shareholder class action then several thousand (and this is the entire point of class actions).
Among the shareholder class, there are a few different categories, each wins or loses a different amount due to the class-action:
1) Those who owned the stock at the time of the misrepresentation and continued to own it until the judgement/settlement. These people lose their portion of the lawyers' fees
2) Those who owned the stock at the time of the misrepresentation and sold it before the lawsuit ended. These people benefit from the judgement/settlement amount, minus lawyers' fees.
3) Those who did not own the stock a the time of the misrepresentation, but bought it before the end of the lawsuit. These people lose however much group 2 gained, in addition to some legal costs.
Out of the three groups, 1 and 2 are part of the class, but only 2 benefits from a successful complaint.
Long before the more recent controversies I remember probably the first thing that turned me off a bit was when someone wrote a critical piece about a launch event and Tesla cancelled his car purchase.. (Incidentally I looked up that incident and saw PG kinda didn’t like it either https://twitter.com/paulg/status/694892884508553216?s=21 )
This may be one of the oddest sentence to read on HN. What are you talking about?
Also, regarding canceling someone's car purchase for writing a critical piece, why do you see that as a bad thing? or a good one?
The last time I bought a new car, though, I filled in the manufacturer's survey in painstaking detail, calling out points I liked, aspects I didn't like, and a few things I considered ridiculous or unacceptable. Apparently my responses not only made it back to the local dealer, but earned me a reputation on the sales floor as a dissatisfied customer -- or worse, an unsatisfiable one.
It never occurred to them that if I were really annoyed or disappointed in the car, or had any kind of personal beef with its manufacturer, I wouldn't have wasted time filling out the survey in the first place. I answered the survey honestly and comprehensively because I plan to buy more cars from them in the future and would like my input to be considered.
Companies need to understand that the opposite of love isn't hate, but indifference. When someone takes the time to criticize you in detail, you don't have to take it as a declaration of war. You can always ignore them if you don't feel their input has merit. From hearing all these anecdotes over the years, I'm under the impression that Tesla takes things a little too personally.
Then again, maybe that was the original problem. :)
But sometimes, you also disagree with Musk. Which should be impossible, logically, if the above were true. Which is causing some sort of cognitive dissonance.
And your current thinking on this breakdown in everything you hold to be true is that Elon Musk is the rare subject that's not quite as easy to judge within your simple good/evil framework that usually works so well.
Have you considered that maybe it's your thinking in tired clichés that's giving you all the trouble here? Maybe Elon Musk is right on some things, wrong on others? Maybe "Brooklyn Socialists" aren't always wrong on everything?
I believe I know some people you might file under that term, and some of them like cats, others don't, and there's one who doesn't care either way. Unless you categorically deny the existence of cats, it would seem impossible for you to disagree with all of them.
Why does this matter?
Is the idea that if you're no longer a shareholder, this makes you bad?
Yes, you can tactically become a shareholder and file suits as some people do all the time. You miss earning you get hit by a shareholder lawsuit every time. This is not a rare thing, but also does not necessarily imply they have any reasonable claim to any damages. Could be just leeching.
The distinction between this and the SEC matter that was settled is that SEC is supposed to care about the integrity of the market at large, not just Tesla, Inc. shareholders doing well at the cost of other players in the market that were misled. That's a much stronger basis to argue for damages.
Tesla's stock went down below 200 in May of 2019, well after the tweet and skyrocketed after that. The long term performance of Tesla stock is not the result of that tweet in August of 2018 and that tweet was not representative of creation of long term value. If Musk hadn't tweeted that day, I would bet long-term performance for Tesla shareholders would have been identical.
If Musk actually had funding secured and did take the company private, recent share prices might even indicate that would have been against the long term interests of Tesla shareholders as they were betting on the long-term results of Tesla's investments in manufacturing and would have been deprived of the gains from that bet that they are seeing now.
As opposed to long term traders, who are not trying to make a profit?
Ideally, in a lawsuit, you want the plaintiff to have suffered some kind of harm at the hands of the defendant.
Holding a short position is similar to having a friend with a spare old car. Their lazy kid is going to get a job and their license eventually, and they definitely want to have the car for that, but who knows when that will be. You buy it for $3,000, promising they can have the car back whenever they want. But you sell it immediately to a third party. You're planning to buy them a replacement car on the used market when the car depreciates (they'll never know the difference), hopefully next year that old gas guzzler engine is even less popular and that model year's styling is considered even more dated. When your friend asks for the car back, you'll buy one for $2,000 and make a tidy profit! What happened to these folks was that the car didn't depreciate from $3,000 to $2,000 like they expected it to, that model had the lead role in a blockbuster movie and overnight, it became a coveted classic car. Turns out there are only a couple hundred still on the road, and now, if your friend asks for it back, you'll have to go to a big auction and pay $50,000 to replace it, suffering a loss 4700% greater than the profit you expected to make.
This is a lawsuit for car owNers, not car owe-ers. The owners are $47,000 richer, they don't want to sue the car manufacturer, regardless of any underhanded dealings that got it that movie role.
Again, I agree that your post above might serve as an avenue to claim some damages that a judge would agree to, but to say stock price today is immaterial is just plain wrong. If the stock price had dropped to $100 today, it would have been likely that all shareholders could make a valid argument to a claim, but now at the very least one has to demonstrate that they were a shareholder at the time of the tweet, and they have taken a certain action that hurt them based on that tweet.
Shorting Tesla without hedging (or some good covering protocol) is a fool's game; no margin calls for me. There's a reason why the IV is ludicrous too.
And I don't think that Tesla is a "bad company", it's merely has substantially overpriced securities.
But what I find truly horrifying is how okay everyone seems to be with highly unethical and dangerous behavior when things are going up. Not just in Tesla, but in so many corporate offices.
Amazon grew so big in part because of the dotcom bust which took to the grave uneconomic players from their competition horizon.
Up until now (and possibly still now), the fate of Tesla has been in their ability to raise capital to develop technology and build factories. They raise capital by selling shares or borrowing money using their ability to issue shares as collateral, so a high share price is a prerequisite to their ability to raise enough capital and therefore exist as a company. Meanwhile the charismatic CEO has been a major contributor to increasing the share price.
Without the charismatic CEO they don't have a high share price, without a high share price they don't have capital, without capital they don't exist. At some point they'll be past that dynamic, but they weren't always, and maybe they're still not.
And it's an open question whether the existing auto industry would pick up the ball on electric vehicles if Tesla ceased to exist. It's not hard to argue that they're only doing it now because Tesla is forcing them to -- they could have started 30 years ago and they didn't -- and they don't seem particularly enthusiastic about it even now. They also have a lot of incentives to avoid it, because it requires investing a lot of money in new R&D and retooling factories, and then giving up very lucrative service charges since electric drivetrains are much simpler and require less maintenance. And if Tesla imploded it would be easy for anyone inclined to succumb to those incentives to point to it as an indication that electric cars weren't a good market to be in, as a justification for not entering it.
So right now the world kind of needs Tesla to succeed, at least until they've forced most of the incumbents to release competitive electric vehicles, which they haven't actually done yet.
To rephrase the question: what will change in the structure of reality that will make EVs a great business?
To guide the answer: me currently being able to type it comes from decades of silicon semiconductor manufacturing improvements (none of which were bubble-funded; silicon is often not a massively profitable business but profitable; though those were govt bootstrapped).
When Tesla started out, there was no model for this. Nobody had ever made an electric car that was reasonably competitive with gasoline powered cars. Nothing before Tesla was that fast with that much range. They might have spent billions of dollars trying to develop it and failed. It's hard to raise that much money when there is that amount of risk. But once you're actually doing it, the risk is proved out and there is a known viable model for success and all that's left is to mass produce the design. So now they've essentially done that for sedans and we're waiting on trucks.
> To rephrase the question: what will change in the structure of reality that will make EVs a great business?
Have a look at oil prices right now. They're a lot lower than they were end of last year. That's what a reduction in demand does. The reduction in demand came from the coronavirus, but you get a similar effect from replacing a relatively small percentage of vehicles with electric ones, because they use 0% as much oil as ICE vehicles.
In theory low oil prices are bad for electric cars, but they're also bad for oil producers, who are then making dramatically less money. And the amount of money they're making is the primary lobbying force against having a carbon tax. The other impediment is the pinch the consumer would feel at the pump, which low oil prices also address, as does a larger number of consumers driving electric cars. Take all those things together and it becomes a lot easier to get a carbon tax.
So you build enough electric cars to make the oil industry bleed enough that they're no longer strong enough to resist the need of everyone else in the world to kill them, they are then killed, and ~100% of new cars become electric. Which makes electric cars a good business to be in.
But first you have to get over the hump.
If Tesla continues to work towards a fossil fuel-minimized economy (and to my part, I hope they do), then their stock price will demonstrate this.
If you think investors will lose confidence and back out of Tesla because "the shorts", then they're demonstrating their faith (or lack of it) in the market, not the company.
Either way, a lot of this sounds like "we don't like the way _they_ play the game". Sucks to be a (regulated) free market, huh?
I'm mad about it and my only involvement with the market is through mutual funds and RSUs that are immediately sold up on grant from a FAANG.
He was lying with the intention of manipulating the shares of his company. That is unacceptable behavior for a CEO of a public company.
Tesla later issued a press release where they doubled down on the seriousness of taking tesla private: https://www.tesla.com/blog/update-taking-tesla-private
So you're just wrong on both counts.
It's not OK for directors of a company to make materially false statements to their shareholders and if they do they can (and deserve to) get sued. It's a bit silly to talk about people being "still angry about this" when between filing the lawsuit and today Tesla has been close to bankruptcy multiple times.
The market cap of Tesla is 137.2B in contrast to GM's 29.8B, Ford's 19.6B and Daimler's 32.3B.
Source: https://markets.on.nytimes.com/research/markets/usmarkets/in...
Just to clarify, the stock hit the $969 high very briefly and dropped closer to what it is now far before any of the Coronavirus related moves in the market.
A hostile takeover, perhaps?
Most people can't even handle the volatility of Tesla shares emotionally, when it's leveraged even more, of course Elon get very frustrated when the stock goes down.
He should have just waited a bit more with his billionaire lifestyle that he deserves.
What's baffling is how shorting is even legal. It's strictly gambling and benefiting off the misfortune of others.
https://www.aqr.com/Insights/Research/Journal-Article/Price-... https://academic.oup.com/rfs/article-abstract/26/2/287/15819...
Markets would be far worse without short sellers.
Yeah, and time doesn't mean anything in markets, so that's somehow relevant.
> I point this out not to defend Musk (he is often an idiot, especially on social media), but to point out that the people still angry about this are likely Tesla shorts and day traders.
That...doesn't even remotely follow from the facts you cited. For one thing, a CEO repeatedly flouting securities rules and thereby triggering sanctions against the firm probably means that the current market price is less thanot would be, ceteris paribus, without that occurring. Just because the stock price has gone up since that event doesn't mean that the event did not negatively impact long positions compared to everything else being the same except that event.
I'm not going to bat for Elon here. I just think it sets a pretty bad precedent for investors to be able to sue a person when they make bad investments based on that person's social media ramblings.
If Elon or someone connected to him profited off the ordeal, then there might be something here. I haven't seen anything to indicate that, though.
IANAL, so I can only offer amateur speculation regarding whether Elon's actions were illegal. His actions do not align with any of the "type of securities fraud" listed on that page, but they do fit within the broader definition given at the top of the page.
I'd appreciate if you would refrain from associating me with groups you do not like just because you disagree with me. It's not constructive and it discourages people from challenging the thoughts of the groups they prefer to associate with.
Little in this entire discussion has been productive because Elon's fanboys are all delusional.
You may have unmasked me, but we'll see who's laughing 10-20 years from now when I'll be rescuing children from caves on mars... and driving electric cars through hyper tubes... and... something about flame throwers!
Seriously, though. Here's my real thoughts on Elon Musk. Keep in mind that I don't pay much attention to him, so this is probably not a great assessment. It's just my real impression of the guy.
I think he is a billionaire stuck in his teens. He throws money at things just because they sound cool and that has played a huge part in making him famous. He's reckless, but his celebrity status ensures he will always stay a billionaire. It also ensures he will have plenty of clueless fans and plenty of angry anti-fans. Most people do not fall into one of those camps, but those who do are often quick to let you know it.
I think he's irresponsible, he has a big ego, and his celebrity/billionaire/CEO status means there is serious potential for him to cause a lot of damage. He has done a lot of stupid things, but so far the collateral has been pretty small. I don't think it's fair to say everything he's done is bad, but you could spend an eternity debating how much good he's directly responsible for.
He doesn't strike me as an idiot, but he also doesn't seem especially smart. I imagine he thinks of himself as pretty smart, but that seems to be a common trait among billionaires. I'd guess very little of his companies' success can be directly attributed to him. He comes across more as a rich investor and figurehead than a manager.
Speaking of his companies, they also get a lot of media attention. Electric vehicles, autonomous cars, and space exploration are interesting subjects, but Tesla and SpaceX aren't the only names in those markets. Their brand popularity is just so huge that many people struggle to disassociate those companies from the technologies they work on.
From what I've heard, the work conditions at Tesla and SpaceX are bad (long hours, high stress, poor job security) so I have no desire to work for either. From a customer perspective, I hear Tesla vehicles are very costly to maintain so I'll be cautious about Tesla if I every find myself looking to buy an EV. I don't currently trust self-driving car technology, so that's not even a consideration for me right now.
Like I said, I don't pay much attention to Elon or his companies. I only commented on this one because I thought it was a good example of how dumb the stock market is. It encourages short-sighted behavior from publicly traded companies, it's painfully easy to manipulate, and I think it's dangerous how far some are willing to go to try and make it safe for investors.
How is making trades based on statements from the CEO speculation?
Elon's actions were irresponsible at best, but I think suing him sets a bad precedent. There doesn't seem to be any evidence of insider trading. It seems to me like some investors are just mad that they lost money because they put too much stock in Elon's twitter feed.
> because they put too much stock in Elon's twitter feed.
That would be a wonderful argument, if the company had not put into an actual 8K that Elon's twitter is a source of official information about the company. https://www.sec.gov/Archives/edgar/data/1318605/000119312513...
"Tesla investors and others should note that we announce material information to the public about our company, products and services and other issues through a variety of means, including Tesla’s website, press releases, SEC filings, blogs and social media, in order to achieve broad, non-exclusionary distribution of information to the public. We encourage our investors and others to review the information we make public in the locations below as such information could be deemed to be material information."
"For additional information, please follow Elon Musk’s and Tesla’s Twitter accounts: twitter.com/elonmusk and twitter.com/TeslaMotors"
Yeah, that's pretty irresponsible. I don't see how it changes things, though.
IANAL, but I suspect there's a difference between "follow Elon's twitter because he might release material information there" and "everything Elon tweets is material information".
I have no desire to defend Musk or Tesla. The practice of distributing official information via social media posts is pretty sketchy. But that such an arrangement is even possible only continues to highlight how dumb the stock market is. The more I learn about this, the more it sounds like investors playing with fire and whining when they get burned.
Still, I'm a bit confused -- as much as I think he deserved to be fined/punished for it, the $20 million SEC fine did that.
It seems like he should be subject to an SEC fine or a shareholder lawsuit, but not both -- isn't it redundant? I would assume that the SEC fine was calculated as an "appropriate" punitive amount -- not a punitive amount minus what they expected a shareholder lawsuit would also result in?
Why are the plantiffs so entitled to compensation for damage? Whatever happened, happened - stop dragging the subject!
Because the law says they are. You're arguing against more than 200 years of Western law that underpins the basis of the Western economic system.
It's comparable to criminal and civil law existing side-by-side: if you run a red light and someone gets hurt, you'll be fined for the traffic violation. But the victim is also going to sue you for medical expenses, work income missed, and compensation for any suffering.
Of course any compensation here is going to be paid by Tesla to shareholders of Tesla, who own the company anyway. It might make a difference for individuals based on when they are/were shareholders and when not. But absent such effects, it's a really strange system.
I wonder if Elon Musk will join the lawsuit. He's the single largest victim here, after all. That would be fun.
Here, the SEC is an administrative entity (part of the executive branch) with the power to levy fines. Now shareholders are filing a civil suit for damages. Sometimes, the SEC will participate in a multi-party settlement that can resolve administrative, civil, and even criminal charges at the same time - but that didn’t happen here.
And if you sold shares based on his statement, OR as a result of the enforcement activities that came after, then you lost potential earnings, as a result of (reacting to) his statement.
Martin Shkreli's investors made a profit. But he was still guilty of running a fraudulent pyramid scheme to get them that profit.
We don't know. He might have chosen to not disclose his discussions with other people.
> If he had not secured funding, how was his statement not deceptive?
He might have meant it in earnest. For fraud, surely he must have had the intention to profit from it personally at the expense of shareholders?
> And if you sold shares based on his statement,
Who would have done that and with what reasoning? Why would you sell for a lower price if you believed you'd get $420 very soon? That's a silly notion.
> a fraudulent pyramid scheme
A pyramid scheme is by definition a system where most (i.e. the last) investors get screwed, i.e. they don't make a profit.
Including the SEC?
> He might have meant it in earnest.
You can be as earnest as you like and still be capable of making statements that are factually incorrect. As to your previous point, one would presume that an absolute defense against the SEC's charges about making materially false statements would be to show that said statements were not, in fact, materially false. That didn't happen though.
> For fraud, surely he must have had the intention to profit from it personally at the expense of shareholders?
You mean the hope that the share price would go up, with him as a large shareholder. "At the expense of shareholders" would include "shareholders who may have bought, sold, or changed their strategies, or not, based on Mr Musk not making said statements as a matter of fact, that weren't".
He was making a joke and some money-havers were to dumb to spot it. Suing Musk over a tweet is like me suing Forbes about their forecasts, and I'm a nobody.
Placing my bet that he did not >intend< to defraud them. Going to cost them a pretty penny to try to prove something that didn't happen.
Given that Musk's salary is based on the value of the stock, and that Tesla needed the stock to increase in value to avoid financial triggers, there is already sufficient pro forma evidence to satisfy the intent prong.
Unlike in criminal court, the true burden will be on Tesla/Musk to show that they did not intended to defraud investors. Given Musk's history of making misrepresentations, this will be a difficult task and it is very likely they will settle out of court instead of take this to trial.