SEC Sends Subpoena to Tesla in Probe Over Musk Tweets | Hacker News Reader

SEC Sends Subpoena to Tesla in Probe Over Musk Tweets

wsj.com

60 pointsPuer68 comments

Musk's "funding secured" tweet was incredibly irresponsible. Subsequent elaborations by Musk himself showed he had, at most, an initial expression of interest by potential buyers.

That tweet is at best an impulsive, reckless, perplexing action by a chief executive who should have known how to stay on the right side of securities law. At worst, it's an emotional attempt to fend off, possibly even cause direct financial loss to his many critics and short-sellers.

This doesn't look good for him. This is the key paragraph in the article that makes it serious:

> The subpoenas indicate senior SEC officials have authorized a formal investigation of the company, a step up from the initial inquiries the regulator made to Tesla last week. The SEC opens formal investigations when it thinks a violation of law has occurred and that a probe is justified given the nature of the suspected misconduct and the potential harm to investors.

Unless Elon can suddenly show he had credible funding secured - contrary to his own blog post of last week - this looks like a strong case for the SEC:

> “The release issued earlier Monday clearly raised at least as many questions as it hopes to answer. The probability that there will be an SEC enforcement action is, I think, quite high,” said Joseph Grundfest, a law professor at Stanford University and a former SEC commissioner.

> Other experts agreed. John Coffee, a securities and corporate law professor at Columbia University, said the SEC can credibly argue that Mr. Musk’s tweet last week, which caused Tesla’s stock price to jump 11% the day he posted it, didn’t give shareholders the full picture they needed.

> “This is a clear statement that he has nothing more than an expression of interest as opposed to a binding commitment,” Mr. Coffee said. “It will tell the SEC that they have a virtually open-and-shut case if they wish to sue.”

https://www.wsj.com/articles/musks-tweets-on-tesla-buyout-fa...

Besides the SEC, which can lead to both criminal and civil prosecution, there are also civil lawsuits filed in this case - three of them so far:

https://www.businessinsider.com/tesla-hit-with-new-lawsuit-a...

>Besides the SEC, which is a criminal investigation

I thought SEC only has civil powers. SEC could force Musk out of Tesla but couldn't levy any criminal charges. Only the DOJ can bring criminal indictments.

edit:grammar

The investigation is about potential violation of federal securities law, which would be a criminal offense. If there is sufficient evidence of such criminal violation, the SEC will hand it over to the appropriate enforcement agency to prosecute it as a criminal case:

> As an adjunct to the SEC's civil enforcement authority, the Division works closely with law enforcement agencies in the U.S. and around the world to bring criminal cases when appropriate.

https://www.sec.gov/enforce/how-investigations-work.html

Unless of course there would exist a revolving door between SEC and the companies they are supposed to enforce action on.

http://www.pogo.org/our-work/reports/sec-revolving-door.html

The revolving door tends to be between the SEC and Wall Street. Tesla is a bit further down the road, as it were.

The very next paragraph after the one you quoted makes it sound not quite as serious as you think:

> SEC probes take months and sometimes years, and can be closed without legal action against a target if the SEC decides the evidence doesn’t merit filing charges.

So at worst, it leads to a criminal investigation, and at best it's just something the SEC spends time/money on for a while before deciding to drop it.

The paragraph you quoted applies equally to police investigations. They can also take "months" and don't always lead to prosecution. Would you say that means police investigations are therefore generally "not serious"?

The key factor is the strength of the SEC's potential case, and several experts believe it looks strong:

https://www.wsj.com/articles/musks-tweets-on-tesla-buyout-fa...

I still almost can't believe that he'd be that reckless. He must have known how such a move -- and especially the "funding secured" tweet (where he doubled down with the going private certain pending shareholder vote) -- will be received but the SEC.

Nothing gained, but instead an SEC investigation, numerous lawsuits, and even more short selling than before.

Me neither. My own comments here on HN when the story broke were very positive and impressed for that very reason: it would have been a great feat, buying back the company at 20% above than its present value, especially when he said early investors would have the option to stay in.

It seemed like such a great move, the only problem being how to raise such a huge amount of money. But then he tweeted "funding secured", so that's very solid... I mean, he's a CEO, he knows securities law, he would never post something like that without good reason, right...?

Now it just looks like one of his worst blunders. I believe most people don't even realize how bad it is yet. Based on all I'm reading, the SEC has a strong case, and so do the civil lawsuits.

I'm not a psychologist, but the more I think about it, the more it seems like the type of ego-driven blunder you can only make when you're surrounded by people who worship at your feet 24/7.

It's hard to tell whether something is too good to be true in these unusual news cycles and market conditions. The market wasn't sure either (not that the market is always rational but I digress).

Not only does it now appear to be one of his worst blunders, but it appears to come after a series of self-inflicted blunders. I really thought the false "pedo" accusation was completely awful for someone of his apparent standing, but even that seems to pale in consequence to what could now be ahead.

If he thought things were hard then, they've only just gotten 10 times harder than ever before now. All because of "one"* Tweet.

* More than one Tweet really; there's a pattern of behaviour here.

After his erratic behavior over the last few months, I find it totally believable.

There is something going on with him, and he is not acting normal. Something has affected his decision-making abilities and if I were an investor (I'm not but I'm a Tesla-owner) I would be very worried.

Could you provide more specific examples of his not acting normal? It’s not something I keep up with so I’m not necessarily saying you’re wrong, just curious what this looks like from the public’s viewpoint.

There's the cave submarine incident from a month ago:

https://www.nytimes.com/2018/07/18/business/elon-musk-vern-u...

What's not normal for other CEOs might be considered normal for Musk - it's hard to tell exactly where to start.

Aside from all the unusual things that have been happening of late with his public Twittosphere and the like [1], there might also be the question of whether his personal life is affecting his professional life [2] in addition to that NY Times interview where he reportedly admitted to writing the "Funding secured" tweet while driving to the airport, and also needing Ambien (zolpidem) to sleep.[3]

Now just to apply a skeptic's hat for a moment; assuming that there is anything false in these reports of late, one would be expecting lawsuits being launched by Musk over slander or libel. The weeks ahead are going to be interesting either way.

[1] https://www.vox.com/2018/8/16/17692700/azealia-banks-elon-mu...

[2] https://www.businessinsider.com.au/who-is-amber-heard-dating...

[3] https://www.nytimes.com/2018/08/16/business/elon-musk-interv...

The SEC is no joke, and while it’s probably not the most likely outcome, prison time is on the table here. Elon Musk really, truly fucked up and I agree it’s hard to believe. Then again he called someone who just helped rescue over a dozen people a pedo on the same platform, so maybe something is genuinely wrong with him? Love him, hate him, or indifferent, I think everyone accepts that he’s very bright. Given that, there must be some other explanation for risking prison so casually for no good reason. Sleep, stress, mental health, or something shady seems like the only likely possibilities for such a weird risk.

Musk has been slowly going off the rails for the last year and a half. The SolarCity bailout (I can't see it as anything else) seems to have put a dent in his armor that he still hasn't recovered from, and if he keeps going like he does right now it isn't going to end well. Martha Stewart got booked for less ($45K and change).

If Tesla were a normal company, Musk would have been fired long ago. There was that conference call when he just stopped answering questions because he didn't like them. Or the "pedo" tweet last month when he decided to accuse that diver of being a pedophile because he's resident in Thailand.

The only reason Musk was CEO long enough to potentially commit securities fraud is that he indispensable to the company, not because of his suitability for the role. Tesla should definitely fire him now, but you know what... I don't think they will.

This appears to be the case. One of the articles about the possibility of Tesla going private mentioned most of Tesla's board members are Musk's longtime acquaintances and friends:

> But it has to be a truly independent committee, with the ability to reject a deal, Mr. Cox said. “This becomes very problematic at Tesla” because many of the board members have longstanding relationships with Mr. Musk, he added.

https://www.wsj.com/articles/musks-tweets-on-tesla-buyout-fa...

The more I learn about this issue, the more it seems like a corruption of capitalism: a celebrity CEO running a public company like it was his own private playground.

You can see how the fantasies of "taking Tesla private" figure into this puzzle.

You all make fair points but I definitely don't think it is "corruption of capitalism". I doubt spacex or tesla would be worth nearly as much as they currently are without him because he is a master marketer. They got tens if not hundreds of thousands of people to line up to buy a car years off from production. They also get people to work for them doing 60 hour weeks because they love the mission that he is trying to achieve (source, my brother who worked for tesla and did 60 hour weeks).

On "taking Tesla private", I don't blame him considering the mission each company is trying to achieve will take a long time and spacex doesn't really get much bad press much whereas tesla is constantly hammered which would be demoralizing if I worked there.

> I doubt spacex or tesla would be worth nearly as much as they currently are without him because he is a master marketer.

Nobody said Musk wasn't a great entrepreneur. The problem is the way he runs his companies right now, as a chief executive and major stock holder.

For example, the way he packed Tesla's board full of his longtime friends. Tesla is a public company. It has a board for a reason: the board is suppose to be loyal and beholden to the "public", i.e. the shareholders, not to Musk.

The board is supposed to be independent of the CEO. Indeed, it is supposed to be able to independently assess and - when appropriate - supervise and terminate the role of the CEO.

That is not happening because the current board is full of Musk's friends.

Had the board been independent - as it should be - Musk would probably be more careful, or he'd risk being fired after previous infractions, and certainly after this current one - bringing the ire of the SEC + multiple civil lawsuits down upon Tesla and its shareholders for no apparent gain or reason.

Musk seems to be a great entrepreneur. His present failings as a chief executive are unfortunate, and he is disappointing people who trusted him - notably, his investors and shareholders.

> Or the "pedo" tweet last month when he decided to accuse that diver of being a pedophile because he's resident in Thailand.

I don't mean to be annoying with this nitpick, but I feel it's important for details to be as precise as possible these days - my understanding is that Unsworth isn't a resident by any definition, but once-per-year visitor to Thailand (specifically because he's a cave enthusiast/specialist). I feel that this fact somehow makes Musk's unjustified attacks (ultimately retracted, but not before doubling down) all the (slightly) worse.

Also, I realise that some continue to believe or justify that Musk was "right" in his escalated response, but as an outsider I can't help but notice that Unsworth's original video interview response was filled with normal British humour that Musk completely overlooked and subsequently went full thermonuclear on. Messy.

> This doesn't look good for him.

Can I ask what you mean by this?

Will the SEC arrest him? Ban him from being a Director of a public company?

I keep hearing about him 'getting in big trouble'. But I don't get it.

Don't get me wrong, I'm sure it is upsetting for him to possibly be forced to pay millions in fines and maybe even be kick off one of his projects.

But that isn't a very big downside, and half of it isn't even from the SEC.

I mean, there seems to be a pattern when it comes to the misbehavior of the ultra powerful:

The upside to his action has the potential in the billions, while the potential IF caught is generally going to be a fine worth millions.

He may have snubbed his board badly enough that they make him pay for this incident by removing his control of the project, but that is a separate matter.

I feel whenever someone powerful is going to be punished the media goes crazy over every detail of the noodle that is going to be used as a whip.

>The upside to his action has the potential in the billions

Sending a reckless and untruthful tweet does not have an upside in the billions. he could take tesla private without lying to investors.

I think there is a good chance he won't be in control of Tesla in 18 months. Prison is not out of the question.

Hmm, yeah, you know what now that you mention it there's loads of charismatic billionaires in prison for their tweets.

It's not the tweets, it is the effect they have on the stock price and that in turn can lead to losses with others or gains for Musk and either one of those can come back hard.

See:

https://en.wikipedia.org/wiki/Martha_Stewart#Stock_trading_c...

For how little it takes to get in serious hot water.

Can you show even $1 in gains by Musk?

The tweet quite clearly cost Musk tremendously. Two bad words without any profit motive, I doubt extremely this leads to a conviction, but speculation is cheap!

The stock jumped up enormously afterwards, and even if that wasn't Musk's goal it was pretty predictable that it would.

Not gaining from it is no excuse for doing something illegal (and stupid to boot).

The gains after the tweet were gone within a minute. The stock was up enormously before the tweet was even made.

If anything the stock is down from the whole affair.

Is it illegal for Musk to tweet something false on Twitter? I don’t think so. On April 1 he tweeted the company was bankrupt!

Keep in perspective this is two words in one tweet. When people asked questions did Tesla follow up with lies and stonewalling or more information?

These are all factors which you might consider before throwing someone in jail or telling them they can’t work at the company they built.

On Monday, August 6, the stock closed at 341.99. On the next day, the day of the tweet, it closed at 379.57, and remained higher than the Aug. 6 price until close of today at $338.69. It does seem to reckless to be a deliberate illicit plan, but then again, tweeting at all about it seemed too reckless to even contemplate, and yet here we are.

IANAL, but it's not illegal for Musk to tweet falsehoods, period, on Twitter -- such as lying about his height -- but it is illegal to disseminate false info that may be used by investors. Do you seriously see no difference between an acknowledged April Fool's joke and a statement regarding a significant change in ownership and financing of a company?

Via SEC Rule 10b-5:

https://en.wikipedia.org/wiki/SEC_Rule_10b-5

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security."

Thanks for quoting the law.

It’s that last line which I’m specifically curious about.

What if there was no purchase or sale of any security in connection with the misleading statement?

Your story does not line up with the facts as I know them.

Besides that, yes, as the CEO of a listed company you have a rulebook to follow in case you do stuff that can influence the stock price (positive or negative, it does not even matter).

There is a format for the release of material information to ensure that the stock market remains viable, if you do not follow that format you risk getting the book thrown at you.

So yes, there are all kinds of factors that will determine what if anything comes of this. But Elon tweeting the company was bankrupt on April 1st was irresponsible, this one is just plain bonkers. Either he had funding lined up and then he should have followed proper form anyway or he is completely out of touch and focused on the wrong things.

Too little sleep will do funny things with you.

If you have the kind of plans that Elon Musk does you should probably try to avoid jail time because that might mean your toys get taken away from you.

"Only little people pay taxes" - https://en.wikipedia.org/wiki/Leona_Helmsley

Not a billionaire, but Martin Shkreli is coming to mind right now.

> Will the SEC arrest him? Ban him from being a Director of a public company?

The SEC won't arrest him, the SEC isn't the police. But it is looking for evidence of criminal activity, and if it finds such, it is supposed to transfer it to the appropriate authority (the DOJ in this case), which can then press charges.

The SEC could seek to bar him from being an officer or director of a public company. That would be independent of any criminal charges that might be filed. Elizabeth Holmes agreed to similar terms when she settled with the SEC. In some ways I would agree that the downside for him might be limited if he can convince investors in SpaceX that they might need to wait out any imposed ban for a liquidity event.

While I agree that there are billions in potential upside in Tesla the potential return on that tweet was always negative given what was likely to follow.

Elon must be going through some serious shit in his personal life considering his pathetic attention-seeking behavior on social media. It's kind of amazing how a man who is clearly so bright and talented can act like such a moron when given a way to instantly draw attention to himself.

Some might think this is all gossip, but I think it could all be very relevant:

https://www.nytimes.com/2018/08/16/business/elon-musk-interv... - Not sure what he expected to gain from this interview.

https://www.businessinsider.com.au/who-is-amber-heard-dating... - An older article talking about Musk's loneliness vs happiness and by implication, effectiveness.

https://www.vox.com/2018/8/16/17692700/azealia-banks-elon-mu... - Just bizarre, and I don't mean Azealia.

https://www.businessinsider.com.au/elon-musk-grimes-unfollow... - Why?

As ridiculous as it all might sound to non-social networking people, taken together it all starts to look messier and messier. It's beyond celebrity gossip now. I can't see how any of this is good for business.

> Besides the SEC, which is a criminal investigation, there are also civil lawsuits filed in this case - three of them so far:

http://www.haynesboone.com/Publications/criminal-enforcement...

> The United States securities laws are enforced through both civil and criminal actions. On the civil side, the Securities and Exchange Commission (“SEC”) has broad investigative powers and can bring civil enforcement actions seeking monetary penalties, injunctions, bars against serving as a director or officer of a public company, and other civil remedies. The SEC’s civil enforcement is supplemented by the activities of self-regulatory organizations such as the major stock exchanges, state securities regulators, and private litigants. The SEC does not have authority to bring criminal actions. Criminal violations of the federal securities laws are prosecuted by the Department of Justice and the ninety three United States Attorneys offices throughout the country (collectively the “DOJ”). The DOJ may seek indictments for criminal violations of the securities laws on their own initiative or through formal or informal referrals from the SEC. This paper, presented to the Union Internationale des Avocats Winter Meeting on Claims Management, Torts and Litigation of Claims, focuses on the criminal enforcement of the U.S. securities laws.

Has instantly-public texting with no review prior to publication EVER been a good idea? It really seems like the simple solution of requiring ONE other person to OK a message would help so much. It would further help if systems had uneditable history logs so you know exactly how a message got out.

Examples of bad texts are widespread, from all over the planet, not limited to companies:

- Companies shaken up by impulsive tweets from an executive. (One person, instantly public, no review.)

- Remember Hawai’i receiving texts about a missile launch? (One person, instantly public, no review.)

- World leaders sending extreme messages that could frankly start a war. (One person, instantly public, apparently no review.)

- Reddit founder editing stuff because he got mad. (One person, instant effect, no review.)

If anyone likes financial entertainment with a dash of the absurd, Zero Hedge was right on the money the same day he tweeted 'funding secured'

> "bankers close to Tesla have no knowledge of the buyout." Come to think of it, until just two hours ago, Tesla didn't either.

https://www.zerohedge.com/news/2018-08-07/tesla-jumps-saudis...

It's doubly ironic that his apparent intention (or mere desire) to take Tesla private has now only made the share price even more volatile. SpaceX aside, he's really having an anti-Midas touch this year.

Can things possibly get any worse? (Is this a safe question to contemplate...?)

glad to see SEC acting in some form on this. While I hope Tesla succeeds, I rational communication from Wall Street companies.

I __prefer__ rational ...

HN allows you to edit your post, at least for a few hours after you submit it..

Will SEC investigating this issue prevent the share acquisition going ahead?

It’s not just the shorts that ought to be pissed. He’s intentionally tanking his public companies so they can go private at a discount.

Pulled a similar maneuver with solarcity just before profitable revenue could taint the red. Repeating the same shit with Tesla.

So you think he's secretly helping the short-sellers?

I think he’s fucked speculating shorts and bulls alike. His shit stopped the squeeze triggered by the PIF news. Calls are basically options of an option.

Between this and his "pedo" comment I worry Musk is simply not sleeping enough. Even worse, he may be taking drugs to keep up the pace.

I've been following him for 10+ years and never worried about his judgement until these incidents. Taking Tesla private is probably the best possible path because it would relieve a lot of the pressure on him.

Doesn't he fly between 2 cities twice a week to be with his kids and his work. Seems pretty crazy to me.

https://outline.com/u2qNKA

Outline link, paywall.

http://archive.is/4pDPD

Musk is a brilliant entrepreneur, but he is also a charlatan and a terrible CEO. The solution to this crisis is quite simple. The Tesla board of directors should relieve Musk from his duties as CEO and, if necessary, remove him from the Board itself. Disclaimer: My opinions only. I have no financial interest in Tesla's success or failure.

>> charlatan

No, he isn't. This word is far too strong. He might not be a good CEO but he's definitely not someone who "falsely claims to have a special skill."

...such as the ability to rescue children with a magical submarine?

OK I was with GP until this comment.

The one he demonstrated?

You mean the one that was dubbed completely impractical? Making a water tight tube isn’t hard.

Completely impractical is correct. From an ABC 4 Corners interview with one of the expert cave divers involved:

TRANSCRIPT EXCERPT:

> JASON MALLINSON, BRITISH CAVE DIVER: "They had a full-face mask on.

So, it was basically that one thing that if the mask that they were using became dislodged and water entered that mask and it- couldn't get it out, that was the one thing that would kill them.

You got to a section, you know, th-the vertical section we was talking about, and by that time you've been in the system for five hours.

You don't remember where the vertical section is and the only time you find about it is when your head bangs against the wall there.

And you, you're trying to get yourself through this vertical section, but you can't remember exactly how it's laid out

So, I'm trying to get myself through it, but I'm also trying to get a kid through it, who's vert- sort of horizontally in the water.

Trying to post him through - no, that doesn't work; pull him back.

Trying to post myself through - that doesn't work.

And you could spend several minutes at one, just one obstacle to try and find your way through.

And you know, eventually we did it, but it's a very slow process and quiet, quite daunting."

http://www.abc.net.au/4corners/out-of-the-dark/10000580

In a swimming pool? In a tweet?

Let's please resist the temptation to go another round of generic Musk-this Musk-that.

Is there any way to stop a substantive and interesting article like this, which has as it’s only failing that it’s critical of Musk, not be flagged off the front page?

He seems to get very little sleep and carry a lot of stress. It all seems to be catching up with him based on his recent gaffes.

And replace him with whom, precisely? Did you resurrect Edison?

Tesla is established in the popular consciousness now and its problems henceforth are production and supply-chain. There are many, many people better qualified than Mr Musk in those fields.

If only he'd proposed going private at $420.69

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