Elon Musk Settles SEC Fraud Charges
sec.gov
sec.gov
We can armchair quarterback the company all day long about whether Musk is replaceable or not, but short of folks that have direct experience within the company we don't really know. What we can say with some confidence is that if Musk were really removed in any meaningful way the market would crush them utterly within hours. The shareholders want Stark Industries, not some near-insolvent car company with severe production shortfalls and a teetering runway.
To find him in film they have to watch the Greatest Showman.
For me this makes sense and I've seen it also elsewhere. The person with lots of energy and ideas may not be the best person to execute things in a corporate context.
It just subtracted $40mm from the status quo and, moreover, will likely have negative repercussions on the company's ability to raise capital in the future.
Perhaps the increased independence of the board will facilitate raising capital?
"(b) create a permanent committee (“Committee”) of the Company’s Board of Directors, consisting of independent directors only, overseeing the (i) implementation of the terms of this Consent and incorporated Final Judgment; (ii) controls and processes governing the Company’s and its senior executives’ disclosures and/or public statements that relate to the Company; and (iii) review and resolution of human resources issues or issues raising conflicts of interest that involve any member of executive management. The charter and composition of the Committee is subject to review and approval by the staff of the Commission;
"(c) employ or designate an experienced securities lawyer (“Securities Counsel”) whose qualifications are not unacceptable to the staff and maintain such counsel (or a successor Securities Counsel) for so long as the Company remains a reporting company under the Securities Exchange Act of 1934. The Securities Counsel will review communications made through Twitter and other social media by the Company’s senior officers in a manner that is consistent with the Company’s disclosure policy and procedures, including the procedures and controls referenced in subsection (d) below, as well as advise the Company on securities issues, including, but not limited to, compliance with all federal securities laws and regulations;
"(d) implement mandatory procedures and controls to oversee all of Elon Musk’s communications regarding the Company made in any format, including, but not limited to, posts on social media (e.g., Twitter), the Company’s website (e.g., the Company’s blog), press releases, and investor calls, and to pre-approve any such written communications that contain, or reasonably could contain, information material to the Company or its shareholders. The definition of, and the process to determine, which of Elon Musk’s communications contain, or reasonably could contain, information material to the Company or its shareholders shall be set forth in the Company’s disclosure policies and procedures;"
Edit: I wonder what the SEC will think about “leaked” internal memos like https://www.bloomberg.com/news/articles/2018-09-30/tesla-ver...
For that to work, you'd need a particular sort of senior management arrangement, not just to leave him alone, but to take a lot of heat for his eccentricities. You need particular people capable of forming unusual understandings for that to work. And there would also necessarily end up being limits - there's only so far folks will cover someone else's bets.
The second reason is Musk's ego. I think he'd find a demotion humiliating, and if he's not treated as a Master of the Universe Superhero-CEO, I bet even money he'd behave worse, pick fights with his minders, etc.
Yeah. Of course he wears his ego proudly. You don't rise to that level without above average chutzpah. But I think that's more a side show than the featured event.
You can draw a very short dotted line to all the automation they eventually had to rip out of the Model 3 production line.
On the plus side he's a visionary with a lot of cash. The downside is that his ego wont let him take advice from people he doesn't agree with.
The latter character flaw is a recipe for disaster if left unchecked over the long term. This move is good for Tesla.
Elon Musk should not have said what he did, but advocating for sodomy is not critique. Some cultures have the death penalty for sodomy whereas the acceptance of critique is celebrated as wise in most cultures. The character flaw of the news is that in cases like this, it does not seek to create a peaceful resolution between the two parties, but instead blows up their differences as much as possible. Both of these men tried to save the lives of kids.
I agree that Twitter censure is likely to be of benefit to Tesla. Starving the news of Elon Musk content is a good thing. It will hurt the profits of attention-derived news. Plus, the doom of the ICE industry is rearing its head. So they can talk breathlessly about that and criticize the existing auto manufacturers for not seeing the writing on the wall once they figure out a new strategy to maximize their attention derived profits. I'm cynical enough that I figure this story shift will probably happen around the time that Tesla starts taking out television ads.
What Elon did:
> Elon Musk has escalated his baseless attacks against a British diver, claiming without evidence that the man who helped rescue children from a cave in Thailand was a “child rapist” in an email to a reporter. [https://www.theguardian.com/technology/2018/sep/04/elon-musk...]
Makes for a great story though. Much outrage. The madder you are, the more irrational you have become? The better. Many clicks. Much profit. Much circus. Totally get why the reporter violated the principle of off the record conversations in order to earn themselves money and create drama. People make money, because you just linked this article. That is how this works. This is how social media generated news tends to make its money. If the story didn't outrage you enough for you to share that link with me? They failed.
But don't let them delude you into thinking its in the best interest of either party being reported on to be known for their worst moments. Nor for the public opinion of both people to be shaped by these moments. Both of these people tried to save the lives of children. The character of both people are very likely to be somewhat congruent with that. I presume innocence until shown otherwise with regard to the accusations leveled. It isn't a story of interest to me without evidence which backs it. I refuse to join either mob.
(Which, by the way, is something that is generally A-okay - "sodomy" refers to gay (usually anal) sex, and Western societies have generally decided that's not a crime anymore.)
>Some cultures have the death penalty for sodomy whereas the acceptance of critique is celebrated as wise in most cultures
Anyway, he actually said Elon Musk to "stick the submarine where it hurts" and called it a PR stunt. Elon then responds with this tweet, which I think is relatively appropriate:
https://twitter.com/elonmusk/status/1016960469737693184
Elon then also made this statement:
https://twitter.com/GossiTheDog/status/1018513062855364608
And a series of other tweets doubling down on the sentiment. This is insane and depraved. You can argue that this is all inflamed by the media, outrage culture , etc, but at the end of the day, the CEO of a hugely popular tech company took to twitter (where he has 23m followers) to spread vile and baseless accusations about someone.
He made these tweets originally and publicly in JULY. It was only recently (and after apologizing) that he REPEATED the accusations to Buzzfeed news. And the buzzfeed reporter also preempts your accusations that the emails were leaked improperly ("He prefaced the email with "off the record" though I did not agree to that condition. Off the record is a two-party agreement.")
> Both of these people tried to save the lives of children
Yah, sure. But one of them also took to their social media and their millions of followers to accuse the other of being a pedophile, and then repeated the accusation, and then apologized, and then REPEATED the accusation again months later. With no proof. And so Musk can both be someone who tried to save the lives of children and a piece of garbage who is prone to emotional outbursts that can do real damage to real people.
Yeah, bad way to make my point. I know that there is very clear adversarial search for and an adversarial amplification and adversarial provocation of all Elon Musk's flaws. This amplification involves a game of telephone in which their is mounting outrage which turns 'shove it where it hurts' into 'dared to critique the proposed engineering solution'. I'm trying to introduce reality again in the hope of stopping the mob mentality death threats toward Unsworth and the harming of the mission of electrification of transport. People are intentionally trying to help feed this system, to see what happens [1]. I've seen enough of what happens to know this is a bad idea.
Pretty sure the right thing to do is let the conversation die. Due process will bring much more justice than social media amplification.
[1]: https://twitter.com/TeslaCharts/status/1008405211432570880
The guy is now suing Musk, which really is (in my opinion) his only choice, as otherwise many people might assume the accusation is true (as Musk is so sure, and even asked why he wasn't being sued as a response)
> The guy is now suing Musk, which really is (in my opinion) his only choice, as otherwise many people might assume the accusation is true (as Musk is so sure, and even asked why he wasn't being sued as a response)
I agree.
Given his large-scale visions, I suspect the attempt at extreme automation was intended as a proof of concept about fully automated manufacturing for off-planet use.
Knowing that, it would explain his tendency to make sudden pronouncements and try to stay at the office/factory at all hours.
You'd get into even more trouble with the SEC if you ran a public company where the executives and officers are not what you claim they are but are stand-ins for someone else.
Meanwhile, wouldn't it be completely normal and legitimate for a company to give the VP of Engineering or Operations a free hand in making engineering or operations decisions?
EDIT: largely. In a company like Tesla, with such a strong CEO, the Chairman would be a symbolic role. In a very large and sprawling company (PepsiCo?), it wouldn't be so symbolic.
In a company like Tesla, that has been sanctioned by the SEC for failing to adequately control the public actions of the still-current CEO, it's unlikely that the Chairman would be a symbolic role.
Edit: use Musk’s name.
There are specific jobs that board members and officers have. Just having 'the most shares' often isn't enough to do everything you want.
Moreover, he only owns 20% of the company.
Being 'busted down' is a huge political blow, he would be seen as weak, it would be hard for him to do his job.
He could resign as Chairman and save face, and then say 'Ima do Engineering full time' or something but it'd be hard for him to go as CEO.
There's nothing only about owning 20% of a public company.
20% and the largest shareholder, is more than enough to turn any public company inside out. Hedge funds do it all the time with dramatically weaker positions of single digit ownership. Carl Icahn routinely does it with a few percent. It's an immense position in the public markets in terms of wielding power.
'Hedge Funds' do this by forming a cabal with other funds and institutional investors.
This is totally unlike Alphabet or Facebook etc. where there is real and direct power.
I don't doubt is shareholders really wanted him gone they could punt Musk.
In fact, I think a Tesla shareholder should be pretty happy with this settlement. The $20m fine at a time when Tesla is already running low of cash is certainly tough news, but every other part of this settlement is probably good news for the company's long term health. It is also obviously a lot better than some of the punishments people were talking about earlier this week.
The details will surely be disclosed.
It got harsher just after one day
However, it could go awry. If the independent board member were to try to combat Musk and get the company wrapped up in internal struggles, it could go badly for the company.
Hi there. More than 1/4 of my net worth, and over 1/2 of my equity holdings are in TSLA. I agree with every word of this. The $20M hurts, but on net, I think this is better for Tesla than if Elon had won the lawsuit.
Re-balancing your portfolio after things have started to go very, very well is certainly sound advice, and so is selling all your equity in a promising startup the moment it has significant market value (it will most likely still be worthless).
For me, it boils down to two things:
1. I'm pretty conservative with the rest of my money (index funds, rental property). If Tesla went bankrupt tomorrow, I'd be fine. Don't get me wrong -- it'd be a bad day. But the financial hit wouldn't threaten my long-term happiness.
2. I only buy individual stocks when I feel the market has wildly misjudged a company. Tesla fit this to a tee, particularly (but not exclusively) in the early days. I took a large early position and have been buying dips along the way (yes, still). By my judgment, a dollar invested in Tesla still has a much higher expected value over 10 years than a dollar invested in any other equity that I feel qualified to assess. I would love to diversify the highly aggressive part of my portfolio, but hard as I try, I cannot find a deal this good in any other public company. So I've decided how much I'm willing to lose on what I believe is a great bet, and have invested accordingly.
I didn't mean to make this about me or my investment strategy. I was just trying to back up the sentiment that the poster above me expressed -- that people with skin in the game will see this settlement as a great thing for Tesla. I have a lot of skin in the game and that's exactly how I feel.
No offense, but why???? It is crazy to have this much of your meet worth in ANY single company. I can only hope that you are independently wealthy and if TSLA went bankrupt (of which there is a very large possibility) that you'd be ok.
I think it's save to say that the relative amount of money lost is more important than the absolute money lost for most people
Under 35s median net worth is $4k
https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com...
This assumes of course that you've got the basics covered, like being out of debt and having some kind of emergency backup (savings, insurance, well-off parents, etc).
But it would have more or less have wiped out your upside. So if that's the insurance you would have liked for such a risky investment, it would have been better to just invest in something else.
You are right. In most public companies, it would matter greatly since the chairman is the most powerful person in the company ( CEO reports to the chairman ). But as you noted, musk is the largest shareholder, but more importantly other large shareholders ( especially the institutional shareholders ) back him. So he would be in charge regardless. But removing him from the chairman is optically damaging, so it's not insignificant. It matters, but not as much as it would normally.
The combination of removing Musk as Chairman and adding two independent directors means there's a slim chance that he could eventually be fired – more likely, it means that Musk will be held more accountable to the board.
Elon's chairman will be under scrutiny by the SEC to keep an eye on Elon from the inside.
Everyone anywhere near Elon should do one thing: encourage him to get the hell off Twitter. Social media is bad for everyone, but it seems worse for certain personality types.
Please Elon, quit twitter. Even for a year.
But more directly, everyone makes mistakes and we make more rash decisions when we're stressed. At least without Twitter, his spurts of irrationality from being overwhelmed can be kept private and not affect his business.
The root cause of anything is probably something like mortality, human frailty, the laws of physics. We are very far from fixing any of those.
Twitter on the other hand can be changed, and probably some people on this very site work at Twitter and can (and should!) make socially responsible changes. It's not the root cause of anything but it has plenty of influence.
I think we are playing with the definition of root cause here.
disagree
But you don't do things just because they have _some_ upsides; you've got to take the balance. And I think it's been a clear net negative - e.g. potentially losing control of Tesla.
I don't think so. He was in much more risk before, with SEC investigation. The accuser in civil suit is asking for $75k worth of damages. I think Musk can pay off that fine and be free from it. I guess there will be no jail time. Although, i'm not a lawyer.
As I said, beyond that suit, i.e. the suits he’s facing over the tweets. And the DOJ investigation.
this is a much better settlement and easier to swallow.
if he had to admit it then the criminal charge would have been emboldened. unfortunately the settlement itself can still be used as ammunition, but it is contains no admission (or denial) of guilt.
Most likely Musk wanted the optics of declaring himself innocent, rejecting the offer and feigning a fight. I'd be surprised if everyone around him have not been encouraging him to settle, the downside risk was far too great vs the modest settlement pain.
[1] https://www.cnbc.com/2018/09/28/teslas-musk-pulled-plug-on-s...
Would have saved $40M cash and billions in shareholder value if he’d taken the hint then. Nobody should think themselves that irreplaceable.
It’s very clear what the SEC has done. Which is send a warning sign that this is Musk’s last chance before he is fired.
I don’t think they wanted to punish him any more than that.
https://www.reuters.com/article/us-tesla-musk-blackrock/blac...
Leadership is key. I dont like Elon's propaganda machine which IMO is what feeds his cult status, but HE is the reason Tesla is a thing.
Believe in Him. Tesla as a company has no chance against GM or Ford. Elon has a chance because of what he has accomplished.
They say history is events and people. Electric cars are something every company will have in the next decade. What company is going to get an Elon?
source?
That's one view of history - popular in common discourse and historians.
Another view of history is that it is largely driven by economics with historical personalities riding on the coat tails of underlying situations with a very few unique genius exceptions (think Newton, Alexander, Ceaser etc). Also remember that most of history has happened when our population has been 1/20th of what it is today - so we are 20x more likely to have interesting characters even if something depends on genius
It remains to be seen what Musk will be - I actually feel underlying economic growth, material science development in battery technology and need to tackle pollution especially in Asia would have anyways driven electric vehicles rapidly and indeed I wonder if Musk jumped the gun on battery giga factory since we're just at the beginning of battery science - but time will tell.
However, there are circus ringleaders (as Elon has been accused of being), and then there are true polymaths who can both competently direct large scale engineering efforts and deal with entirely disparate realms such as corporate governance, marketing and negotiations. He may not have been getting enough sleep lately, but I think he's more the latter than the former. You don't get put in charge of revolutionary payment systems, luxury vehicles, interplanetary transport and energy storage one right after another purely by accident.
> Some of the things Elon and team are trying to accomplish, could materially change my life
Like what specifically?
> Why wouldn’t you want to be a fan of the things he is doing?
I guess I could be a fan of what he is doing, but not how he is doing it. A few reasons:
- Concentration of wealth to him personally at the expense of my tax dollars (just look at how much of Tesla has been subsidized by the government)
- Tesla is questionably a sustainable company. I think Musk is a visionary from a product/market perspective, but his operating capabilities are questionable.
- You don't need cheerleaders for a more sustainable environment, you need paying customers of environmentally friendly products/services and operators who are fiscally responsible to deliver those goods. I would be cheering like you if he spent more time figuring out how to make his supply chain sustainable and less time touting himself on twitter and attacking his perceived enemies.
- He's demonstrated that he believes he is above the law (SEC) and above respectful discourse ("pedo" comments). Certainly not the type of leader I want my future kids to follow.
I grew up watching Michael Jordan and was a huge fan of what MJ did for the game of basketball. As I grew older, I learned he has a huge gambling problem (that got him into a lot of trouble), he regularly bullied players (teammates and friendly opponents) and is generally not a likable person.
In other words, the end doesn't justify the means for me.
Owning an electric vehicle. I'm currently starting a house remodel, if I could afford the solar roof, I would get one. I still may get the power wall as an energy backup. The price points of these are all high, but the assumption is that as the tech and supply improve, the price drops.
> Concentration of wealth to him personally at the expense of my tax dollars
Agree Elon has accumulated a lot of wealth but he also invests a lot of his wealth into businesses and takes risks with his money. Capitalism rewards people with more wealth if they are good at what they do, I don't mind that. I also don't think he hoards it in the same way as other billionaires. RE Subsidies - other energy companies also receive large subsidies. I may not agree with subsidizing these companies but I prefer to subsidize clean energy ventures vs coal.
> Tesla is questionably a sustainable company.
We should all find out in the next year or two, will be fun to watch.
> I think Musk is a visionary from a product/market perspective, but his operating capabilities are questionable.
If first part is true, does second part matter? Not to me.
> You don't need cheerleaders for a more sustainable environment, you need paying customers of environmentally friendly products/services and operators who are fiscally responsible to deliver those goods. I would be cheering like you if he spent more time figuring out how to make his supply chain sustainable and less time touting himself on twitter and attacking his perceived enemies.
Totally agree with you on this part.
> I grew up watching Michael Jordan and was a huge fan of what MJ did for the game of basketball. As I grew older, I learned he has a huge gambling problem (that got him into a lot of trouble), he regularly bullied players (teammates and friendly opponents) and is generally not a likable person.
Good points. I think Elon should give his teams more credit and I've read stories he can be an asshole- I'm not a supporter of the Steve Jobs bullying mindset and believe you can succeed while being nice. Maybe this is one of his biggest areas for improvement. But I've also seen a lot of interviews where Elon seems sensitive, kind of misunderstood and like he really cares about doing a good job and doing the right thing. He's definitely not perfect and I think people expect him to be which has got to be tough.
- A DOJ criminal enquiry into the same 420 tweet
- A whistleblower suit about misrepresentation of its rate of vehicle and battery production
- Another whistleblower suit about covering up a large theft and a narcotics ring
- A class action over racism
- Complaints about union busting
- A defamation suit over pedo accusations
- Investor class actions over the Musk family bailout acquisition of Solar City
And probably lots more that we don’t yet know about.
That so many people in tech are holding this stock and are even proud of the company is shocking to me. Sustainability can only be pushed forward with sustainable finances and the Tesla balance sheet is a horror show.
Tesla will file for bankruptcy protection in 2019.
We've been hearing this bankruptcy thing every year without fail since the company was founded 15 years ago. This doesn't mean the company won't go bankrupt but that they are more resilient than given credit for.
>And probably lots more that we don’t yet know about.
Those court cases you listed are daily life for big companies. Intel has been tied in a court case with the EU since 2001. Google just settled a court case. Google is also facing a bunch of other court cases. Tesla gets the spotlight but look around.
The Bloomberg Model 3 counter registered a sharp dip, so the risk is real, but my take is that it doesn't matter.
There is an unprecedented amount of decent EV models coming up for model year 2019. This goal has been achieved and I believe Tesla's stock always reflected the rate at which we were getting there, not the company's long-term viability.
The lack of insider sales and no raise over the past year, despite the precarious cash position, tells me something is preventing a new stock offering or not placing.
#5 car in america
Doesn't matter if news is good or bad. People like you will flood the comments of all forums with visions of doom. Just a couple days ago everyone was sure the SEC case would sink Elon and look at where we are at now. This isn't a day trading forum. You don't have precognition.
Seems to me that Twitter has become a quick way to create or destroy your career.
One tweet, $40 mil...
Does anyone know how this process works, or do you think short sellers would have a claim to some of that $40 million?
The biggest burns are the people who bought in at $370 thinking that Elon Musk would be selling the company at $420.
Shorts may have gotten margin called, but the stock was skyrocketing on the news. Everyone who bought stocks during the tweet in question is basically able to sue for damages.
As long as he got his "friends and family board" he probably will do what he has been doing. I doubt 2 new directors will be able to control him.
After hours trading is only up .5% from close, Friday morning it was already down like 12% when the market opened.
That number was calculated as of 8PM Friday. It doesn't include the impact of this news.
Which means they have the ability to remove him as CEO.
Interesting to note specifically the point about controls on his Twitter account that could’ve prevented this.
There’s been persistent rumours of serious drug use. His outbursts are erratic and unhinged ie. calling a diver a paedophile on multiple occasions. His private life is extraordinary for a CEO to say the least. He clearly lacks self control ie Twitter and Joe Rogen show. And his I’m the victim attitude towards short sellers, media etc is pretty unparalleled.
I suspect that losing the Chairman position is the last step before being removed as CEO.
I am not saying his public statements were bad. Just trying to put some perspective. Also, smoking marijuana is ok and legal. He took a puff and all of a sudden he is a drug addict. WTF!?
Just watch his interview Salman Khan (Khan academy) or look up his accomplishments.
It is illegal on a federal level. And as someone who runs a company with multi-billion-dollar National Defense contracts, which are almost certainly contingent on him holding a security clearance, it shows an incredible lack of judgement to consume marijuana publicly.
You mean to say illegal.
All this 'he is a drug addict' stuff came from like 2 people saying he used sleeping pills sometimes.
I'm skeptical however.
I’m assuming over the past 24-48 hours it’s been a full court press of everyone trying to talk some sense into Elon. Glad they succeeded!
https://www.autoblog.com/2018/09/28/elon-musk-walked-settlem...
They need a serious executive from a former car company who has experience in quiet, deliberate execution. Lots of companies are making cars without anywhere near the same levels of fanfare.
I don't know much about the auto industry, and don't really follow Tesla, but I do know that Tesla stock is worth almost an order of magnitude more than General Motors.
TSLA ~$45.5B
GM ~$47B
And you can be an enterprise CEO and still innovate as a company eg. Apple, Microsoft, Mercedes-Benz.
I guess that’s the new meme about Musk now, but I see no reason to believe it. Plenty of startup CEOs have done well after their companies became enterprises. Larry Ellison and Bill Gates and Jeff Bezos are obvious examples. So is Steve Jobs, who came back to Apple after a decade of absence and rebuilt the company.
I get what you're saying, but choosing from "business as usual" automotive industry leaders has a spotty track record.
Particularly where innovation is concerned.
Especially since Tesla is not just a car company. They are making headway into utility scale energy markets, planning to get into roofing, and have a relationship which will likely help them in the disrupting-the-use-of-roads-as-primary-means-of-transport-by-the-elimination-of-traffic industry that Elon Musk is trying to get set up. It's very safe to say that the status-quo certified executives could still need to continue playing a game of following-the-leader.
While Elon Musk is saying that the only thing that matters is pace of innovation, legacy automaker executives are advocated for on the basis of their relationship with status quo. Tesla doesn't exist in a world with status quo. In a world with status quo, regulators force the automakers to acknowledge the impact of their work on climate change and they grudgingly change course. This has been happening over time. We've seen them faking emission test results. We've seen them producing compliance vehicles so that they have access to markets that are trying to convince them to actually do the right thing.
So yeah, I'm in total agreement with you.
Which is to say that if Tesla hadn’t produced great cars nobody would give a shit about what the guy that started PayPal had to say. He’s famous because Tesla delivered, his so called celebrity status didn’t make the cars popular.
Or did he jump in as CEO after Tesla became popular?
People like Musk aren't just replaceable, they should be replaced so soon as possible to lookout the damage they do.
Could that be because almost all of those other cars are utterly unremarkable?
Not really.
They need that as a COO.
Tesla has no real magic sauce. They are what they are because of the Musk Hype Machine and his ability to 'inspire' people to move to electric.
If Tesla was based on some magic ingredients that were a real competitive advantage, I'd say let a 'quiet' CEO take over with a hot dog CMO.
But they are still in 'founders mode' wherein the founder is a big factor in inspiring and motivating and that gives him a lot of power.
You might be surprised to know that regular CEO's don't necessarily have all the power you think. They have to convince, fight internal battles, motivate. It's hard for them to do 'big things'.
Musk is becoming a problem but not so much that he needs to go.
He needs a really powerful COO who can go toe-to-toe with him - and he needs to get some f*ing sleep and go back to the 'old' Musk from 2010.
SpaceX succeeds mightily partly because there are many other forces there to counteract Musk's problems, which doesn't seem to be the case with Tesla. It's also worth noting that Tesla is on a lot shakier ground than many of its fans believe. Tesla's done a great deal to advance the technology of electric cars but the rest of the industry is catching up and Tesla has made some major mis-steps of late (such as with model 3 production). Yes, Tesla would be ill-served by replacing Musk with a typical empty-suit executive, but with a competent and pragmatic leader it would probably be just fine.
The Board and Chair set the overall strategy, while the CEO executes. In the next few years, the strategy is already clear -- execute on the Model 3, Model S & Roadster upgrades, Tucks, and solar products. The board should just be a background process for a while, while the pressure is on the CEO. By the time he gets his 'Chairman License' back, it may be time to update strategy.
Meanwhile, the SEC notches a "win", the investors can go back to their regularly scheduled short-long bickering, and Elon can focus more on delivering.
The plan, as it was negotiated by lawyers, was for Mr. Musk to step down as chairman of Tesla within 45 days and not resume that post for two years. The company, also a party to the proposed agreement, would add two new directors to its board. Mr. Musk and the company would pay tens of millions of dollars in fines, according to the people, who requested anonymity because they were not authorized to speak publicly.
Well, the stock has done somersaults in all directions since then (benefiting both longs and shorts.) I wonder who would be eligible for part of this payout.
I suspect the investors with the best-connected lawyers will get payouts, which they will then share with the aforementioned best-connected lawers.
Presumably this is short term pain for long term increased stability/control over investor communication.
Moreso is Tesla [investors] paying the price for the SEC to make an example of them for all other public companies.
it was a hell of an expensive way to win
if you're measuring winning in terms of
protecting investors.
Will they think "Remember Elon Musk, he got his ass kicked at high cost to himself and his investors, nobody does it" or will they think "Remember Elon Musk, he did this and got away scot free, everyone does it" ?
That's the choice facing the SEC, and for obvious reasons they chose the former.
The deterrence argument can be used to justify anything. Why don't we behead the entire families of petty thieves? Think of the millions of other thieves who would be deterred.
It's a false dichotomy. The choices aren't "scott free" or "nuclear option" -- if their case was as strong as is being assumed, all they would have had to do is ask for what they got in the settlement and then get that in the proceeding. It wouldn't even remove the incentive to settle because that still allows them to avoid a determination of guilt.
They could also have just given the settlement negotiations more time before making a public charge to begin with. Give the other side's lawyers a chance to explain things to their client for a while first.
If CEOs are allowed to release false information, it won't be long before every other company behaves like Enron, and investors desert stock markets.
That the SEC settled so quickly and for so little makes me think they believed they couldn't get any more to stand up in court. I assume that Musk refused a more harsh earlier settlement because he was aware of this. So he played chicken with the SEC, and the SEC backed down.
It would be really good, though, if Musk learned a lesson from all this and decided to be more responsible in his communications.
The Thursday's failed settlement was slightly better that this one too. SEC's case is likely to hold up in court because Musk's recklessness was too obvious but the court's punishment would probably be similar to the settlement.
Without that social media hype process, are Tesla commercials in our near future?
That still doesn't seem to be enough to be the most expensive tweet, though. That honor seems to be this tweet[1], where a finance firm "Selerity" tweeted Twitter's missed earnings report prior to Twitter really announcing it, costing Twitter ~25% or $8B. (The earnings report was uploaded early to the investor relation's page on Nasdaq, apparently, and it showed that Twitter missed its earnings.)
Social media gaffes of the "optional" variety (Kylie, Elon, Roseanne) are a different category IMO.
Can someone much smarter than me explain how Musk buying 20 million dollars of Tesla stock is punitive?
The media must be chomping at the bit!
Will he reign himself in, or will the circus continue?
Does that mean the people who got their shorts called? That is kind-of the opposite of being an investor. It would be odd if Tesla would have to look after their best interest.
> The $40 million in penalties will be distributed to harmed investors under a court-approved process.
There was too much hysteria in the coverage of, and reaction to, this whole affair.
Why are you so confident?
The SEC had a very strong case (or Musk would never have settled). Had they pursued it to its fullest extent, I see no reason why they couldn't get a strong ruling in their favor.
This comment reminds me of the comments that "this will never amount to anything" when rumors of SEC interest in Musk's announcement just begun circulating. And yet, here we are...
The other big factor is that removing Musk as CEO would have caused more harm to Tesla shareholders than Musk’s tweets did. The SEC does not want that outcome. The SEC wants to find outcomes that punish rule violators without harming investors.
Because the SEC, like most other litigants, is willing to accept less than its ideal solution for a certain, cheap, immediate, and final resolution; what you seek going to court is everything you would ever want, what you ask for in a settlement is may be more than the minimum you will accept (if you want negotiating room, OTOH, you may want to do a best offer to maximize the chance of immediate acceptance and just move on to litigation if that fails) but will always be less than everything you would want, unless your case is so strong that you view settlement as basically a gift of swift resolution of a foregone conclusion to the other side, which is rare.
> The other big factor is that removing Musk as CEO would have caused more harm to Tesla shareholders than Musk’s tweets did.
Tesla shareholders as a class aren't the harmed party the SEC seeks to address a harm to, they are the principal who failed to adequately supervise their agent who is the bad actor in this case, which is why Tesla as well as Musk is, even with the settlement, paying a fine.
Then why did the SEC say "The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders"?
There is absolutely nothing wrong with trying to minimize harm to Tesla shareholders, in fact that would be part of the SEC's stated mission.
However, it is not the only part. If Musk used fraud to inflate Tesla's share value, benefiting Tesla shareholders but harming many other people, then the SEC would still intervene.
In other words, it's a consideration, but not the only one.
It's not like he will be any less influential where it matters. Merely running a company probably isn't Musk's most valuable contribution to Tesla. This will give him more ability to focus on engineering matters.
But Musk does a thousand times more engineering than I do. And he knows a thousand times more about engineering than me. Or anyone of my colleagues.
He can surely also be considered an engineer.
[1] You could argue it's true by pointing out that ninety percent of Tesla's marketing IS engineering, engineering that fuels a powerful perpetual hype machine.
[2] It's obviously not. He is formally trained in economics and physics, and he proved these qualifications with PayPal and SpaceX respectively. When it comes to marketing he's quite clearly uncomfortable in that role.
There are comments about how quickly Musk managed to understand rocketry but that doesn't make him an engineer. I suppose he has enough knowledge to understand what SpaceX is doing and where to invest but not for designing entire rockets.
Nobody knows as much about every single part of the Falcon 9 as Elon. Again, this has been said by many people.
Please actually inform yourself and don't be guided by bias.
> Musk is agreeing to step down as chairman of the board (while staying CEO) and Tesla is appointing two new independent directors. It's a significant curtailing of his power over Tesla. How was the coverage overplayed?
The obsession with Musk is way overplayed at this point. The idea that people care about Tesla at all is laughable. At this point it's all about the desire to see their betters brought low.
Elon will learn a hard lesson, there will be a committee and procedures to control his communication channels. He will still be CEO and the spirit of Tesla will be unharmed in the long run.
As much as I see myself as an objective person, Elon is genuine in his passion and his vision. Derailing him to jail time or prison would be a net loss for humanity, however objectively and legally inconsistent it may be.
Edit: The news cycle and PR things have a very short term memory. Just a year ago, people were praising him for his style and overall he was considered an extraordinary leader, CEO and a visionary.
I am very skeptical of this given Musk's recent Twitter behavior (even after the initial Tweet which started the incident).
> Tesla will establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications;
I feel this reliance on Musk as a face of the company is increasingly the biggest selling point of the company, which will be unhealthy in the long run.
I don't really know what it says about the CEO of a
company if they basically have to put him under
supervision. He's not a kindergartner.
Warren Buffett doesn't compose his letters to shareholders in 30 seconds from his cell phone while he's on the toilet. He probably runs them past a handful of people and waits a few days to look at them with a fresh pair of eyes before he sends them out, like a college student would with their thesis.
This is normal CEO behaviour.
This was never remotely a concern. The most severe punishment sought was barring him from being a director or CEO of a public company. They settled on a paltry fine and Musk can't be chair. He's still CEO, he's still on the board, and the fine is less than insignificant.
Honestly losing access to his Twitter account is probably the most severe.
DOJ is responsible for charging Musk with a crime not the SEC.
And it could still happen.
Musk is talented at start-ups but has been a disaster at running scaled up companies. His risk taking on Model 3 assembly line automation nearly sunk Tesla and could still do do. BFR could sink SpaceX, it's a rocket for Mars colonization without a customer.
I'm a huge fan of his accomplishments but the risk taking coupled with the erratic behavior is too much. His boards should kick him out.
I feel like a lot of recent hate has to do with his erratic behavior in recent year. But, lets just look back at 2017 - everyone was praising him for his leadership.
A few PR incidents and now all of a sudden he is incapable as a CEO?
I hate this perspective. As a member of humanity, I want everyone to face equal justice, no matter how pivotal to a particular project or movement they may be. There will always be more visionaries.
Anything else will eventually and inevitably lead to violence.
Elon needs someone to act as a brake from time to time. Like shotwell at SpaceX..
Not sure why people downvoted my question, it's an interesting line of inquiry. Maybe they don't know their history.
Of course, it might be that his tweets are being considered in the larger context of recent irresponsible tweeting by those in power, and thus from the perspective of enforcement it looks like a rising tide.
The SEC are there to protect the integrity of the market. Things like fraudulent information, insider trading, etc are corrosive to the mechanisms which a well functioning market requires.
Maybe there should be a bias towards those who benefit from the continuing viability of the company and maybe not.
But in this case, I suggest it's moot just because the damage to longs appeared to be significantly greater than the damage to shorts and it doesn't counterbalance anyway.
The penalties seem arbitrary to me. Transferring several million (or billion) dollars around as they are doing doesn't seem to rectify in any way the purported injustice to shorts. The whole episode drove down the stock quite a bit, so longs have suffered a lot, shorts have suffered somewhat, and the government collected a commission. Nobody has had wrongs rectified, and it's unknown whether prying Musk away from Tesla is a net gain.
Personally, I was neither long nor short TSLA at the time of the tweet, and I don't think short sellers are inherently illegitimate. However, I think the existence of a public company generally serves a social purpose and long investors are not quite symmetric with short investors. If, in general, there is a dispute where you can apply long investors' concept of fairness, or you can apply short investors' concept of fairness, it kind of makes sense that what damages the company less is probably the right answer, barring something like Theranos that shouldn't exist at all.
I don't think it follows that what harms longs benefits the shorts that were harmed by Musk's tweets. So there is no benefit to compare to the harm done by the enforcement.
Unless you think that reducing Musk's role in the company will lead to the downfall of the company and that is a good thing because someone will profit, which seems like a weird idea to me.
By analogy, if you borrow a car, and your interests seriously conflict with the owner, then probably for the good of society, and the rental market, there needs to be protection of the owner's rights.
At the same time, it seems these days that there are so few people really working for the advancement of humanity to the extent that Musk is. (And just to try to abort the inevitable replies: yeah, I get that he isn't a saint, and yeah, he's done some pretty stupid, ugly, awful things.)
You're right that there will always be more visionaries, but the ones that are capable of executing grand visions that improve humanity seem to only roll around once a generation or so. They absolutely shouldn't be given a pass for terrible behavior, but I hate to see society so eager to tear at them, too.
But jail time for a random tweet seems like overkill, and removing him from Tesla for this does feel like it would be a net negative. He was heavily fined, which seems more fair.
Yeah, it isn't like he was out there randomly accusing people of being pedophiles or anything.
Because Tesla told everyone to treat his account as a corporate mouthpiece:
https://www.cnbc.com/2018/08/08/reuters-america-update-7-u-s...
"Tesla alerted investors in a 2013 SEC filing that they should follow Musk's Twitter feed for "additional information" about the company."
e.g. Google was alleged to have illegally issued options to their employees back in 2004 by the SEC. If they prosecuted Google's board and officers with maximum penalty in a federal court (and the court allowed such nonsense), then both Larry and Sergey (and a bunch of executives) would end up with 5-year prison sentences before Google had a chance to go IPO. But such a course of action is obviously not in public interest - the amount of damage to investors and the public in general caused by the remedy would far outweigh whatever irregularities in option grants that Google committed.
And btw, the same securities laws also apply when you open a startup and raise funds or issue options. It's not "Oh but Google is rich and I'm poor these laws won't hit me". Quite a number of securities law violations don't require intent. A single filing error by your lawyers can mean you're already in violation (and, years in prison if you use the maximum penalty) - even if you're just a tiny startup with $100k.
Both prosecutors and courts have always been walking a fine line on what's considered fair for each particular circumstance. It's how it has always been.
Using your own example, he was basically saying that if someone with "a tiny startup with $100k" was guilty of the same crime, he should face the same penalties as Musk.
Tell that to muslims.
I agree, but why has punishment and enforcement become so utterly derailed from reality or just.... basic morality?
They went after Musk hard because it was a trivial slam-dunk no-effort case. For a tweet.
Then you look at truly evil people who have committed acts of outright fraud who walk due to simply playing the game the government wants you to.
So while I agree with your point, I have very large reservations with current enforcement institutions. Go after a high-performing unconventional guy like Musk who actually accomplishes things with the entire weight of the federal government - but let the parasitic bankers who caused actual damage with outright fraud in the real world completely skate because prosecution would have actually taken work and been career risky.
My limited experience with the enforcement arms of the federal government simply affirmed this point of view. They only care about themselves and their personal careers, and could care less about actually protecting the people or even remotely attempting to find justice.
But if you tweet something that harms some wealthy short sellers there will be hell to pay within weeks.
Yes, this is hyperbolic and could be articulated better - but it's been something I've been chewing on now for decades.
I have nothing against Musk but this is an awful argument. You are simply not in a position to opine on what is a net gain or loss for humanity, so you're arguing that we should make decisions based on the best imaginable future outcome because he already has some notable achievements. Without commenting on the guy at all, please just reflect that almost any wealthy business person has a PR team that not only highlights the person's positive qualities, but works hard to disseminate those opinions in public to maximize the value of the person's reputation.
Edit: Not brevity, wrong word.
I mean, not many people refer to Hulk Hogan as Mr Bollea, or Madonna as Ms Ciccone. But you might refer to Obama as Barack Hussein Obama if you want to draw attention to the fact his middle name sounds like a middle-eastern dictator.
His ego has gotten out of control. He started to believe his own press. It seems to be human nature. Oh ya, we have a word for it, hubris.
With all his reading you would think he would have learned from other's mistakes.
The number one criterion for a functioning democracy is a reliable and consistent application of the law to everybody without exception. Declaring that somebody should be above the law is a very dangerous path.
It’s almost like the current administration should also have these!
B. Obvious joke about “but it’s for sale like it is” :)
C. Anyone still arguing about Trump Tweets is being obtuse the bias in media. He found a loophole to get his message out, I don’t agree with the content usually but can’t fault him for the workaround.
Yes. But it is enormously more important than a simple publicly traded company. If a company fails to follow rules, it might bankrupt itself / cheat shareholders / cause minor economic harm. Maybe the shareholders lose all their money.
If the president fails to follow the rule of law, whole countries will perish.
In a way, the presidency should be held accountable at a far more higher level of compliance than a publicly traded company.
>Anyone still arguing about Trump Tweets is being obtuse the bias in media. He found a loophole to get his message out, I don’t agree with the content usually but can’t fault him for the workaround.
He can get his message out anyway he wants. Tweets, facebook posts, sms, heck even an RFC document. Nobody cares. What everyone cares about is the timing, the potential for vast damage that a single tweet at the wrong time can do, the inherent limited text of tweets having the potential to be misinterpreted.
It's not what he can do, but whether he should do it. A person running a whole country ought to be more responsible and should be held responsible for his actions. And for such a person with enormous power, every small act, counts.
Imagine the president wearing the Hindu swastika (a deeply religious symbol to Hindus) for Diwali celebrations at a state event,but the clip holding the swastika symbol slips, and the swastika turns a bit. There would be seismic changes in people and societies around the world instantaneously. Now, is the president responsible for the loose clip, perhaps not. Is the president responsible for making sure such things dont happen, absolutely.
The idiots that don’t understand the swastica symbol is in Asia can rightfully be ignored.
And to Trump he’s looking at the overwhelmingly negative media putting their intentional spin - he’s claiming they are the ones to say it’s a white power symbol... and looking at the joke of the media making the OK to be the same - he’s not entirely wrong here.
Just admit, you had no problem with Obama tweets and right or wrong or unintended consequences aside - Trump figured out a way to get his message out without the media and that pisses them off.
Twitter, for better or worse, gives you direct access to normal people. I'm no fan of Musk, but I'm inclined to believe that if our financial (and in the example, political) system is so fragile that tweets can blow it all to hell, we have a serious problem and system collapse is inevitable.
I am not a fan of Trump but I think it's cool (terrifying?) that we can get his stream of consciousness through Twitter.
Edit: 20 mil for Musk, 20 mil for Tesla.
In fact, they’ll make a lot of money by removing the uncertainty.
I'll give you one hint: the only world leader that has been laughed at openly by the UN general assembly.
Most of his net worth is likely tied up in stock. Which he can’t exactly sell.
You can also negotiate a payment plan with the government, depending on your financial situation.
Larry Ellison has a $11B line of credit leveraged against 30% of his Oracle shares. This is a non-story.
Sure he's not gonna sell all his stock... but in this particular case, it feels like a distinction without a difference.
People in his position often borrow against assets via credit lines or similar instead. He's carrying an $890m misc liability in his wealth analysis by Bloomberg (13.8m shares pledged against personal obligations).[1] That's Musk borrowing for any variety of expensive life purposes (such as putting $100m into the Boring Company), specifically so he doesn't have to sell equity. An obviously slightly risky move when SpaceX is private and Tesla is volatile and unprofitable.
Larry Ellison as one famous example, had a large credit line against his Oracle stock and used it to buy real estate, live lavishly etc. Eventually the liability got big enough - several billion dollars - his accountant strongly encouraged him to pare it down and go on a budget. Ellison though now receives $500m+ per year in dividends from Oracle, and has since wiped out the large liability.
[1] https://www.bloomberg.com/billionaires/profiles/elon-r-musk/
It's kind of bizarre how $1000 is an entire household's expenditures for an entire month in many countries..
> Settlement Requires Musk to Step Down as Tesla’s Chairman; Tesla to Appoint Additional Independent Directors; Tesla and Musk Agree to Pay $40 million in Penalties
> Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.
Excuse me? Fuld was canned and his equity was wiped out. In what way was Musk "crucified"? Seems to me he got off easy.
light slap on the wrist, a gentle speedbump, back to same.
Basically a speeding ticket.
It could still be more than a speeding ticket.
Which is really all that was needed anyway. The whole idea of forcing him out as CEO, issuing a ban on being a CEO/Director of a public company, etc., was pure over-reach from the beginning.
The next few steps are painfully obvious. I hate to watch.
The board can now officially outvote Elon, so the first bond that defaults will result in Tesla getting sold to BMW or Mercedes (or ?). I predict this will happen within 24 months.
And no.... I don't hold a short position. I actually do want the home team to win.
From the SEC complaint: "...he rounded the price up to $420 because he had recently learned about the number’s significance in marijuana culture and thought his girlfriend “would find it funny"..."
The two of them were probably giggling their asses off as he posted it.
Is it? I thought the other settlement included Musk not being able to lead companies for two years:
https://www.marketwatch.com/story/elon-musk-rolling-the-dice...
The plan, as it was negotiated by lawyers, was for Mr. Musk to step down as chairman of Tesla within 45 days and not resume that post for two years. The company, also a party to the proposed agreement, would add two new directors to its board. Mr. Musk and the company would pay tens of millions of dollars in fines, according to the people, who requested anonymity because they were not authorized to speak publicly.
In other words, it’s the exact same deal presented before with some of the penalties increased. There’s no other way to explain it than Musk rejected the real and then realized he messed up when the SEC started with the lawsuit.
Just look at those HN karma point votes in the past few years, the upvotes for those really awesome hacking technical articles have been frequently outpaced by those downvotes for those petty trifles...If we take that as a measurement, in a certain aspect, we can see that people's hatred and acrimony grow faster than their kindness and sympathy these days...
so I've stopped worrying about those points...for the knowledge value of their corresponding text, they do not reflect as much as they used to reflect....
See for instance : https://www.cnbc.com/2018/09/06/short-seller-andrew-left-fil...
The Musk death spiral continues...
Tesla though, is in a real death spiral with their debt.
https://www.investopedia.com/terms/d/deathspiral.asp
That’s going to be muuuuuch harder to correct, given that they’re going to have sell a load of discounted stock just to keep afloat in 2019.
If you guys want a good chuckle at how wrong so many on HN were two days ago.
https://news.ycombinator.com/item?id=18088099
When it comes to musk and even facebook/google/etc, there is a toxic mix of journalists' hate and a targeted campaign by other groups ( I don't know whether it is short sellers or whatever ). It's ridiculous the amount of absurd hate musk got for a simple tweet. Some even claimed he might go to jail for it.
"In a fraud case over Musk’s tweet, the SEC would only have to show that Musk was “reckless” when he tweeted about going private. The Justice Department, meanwhile, would have to prove “willfulness” — meaning that he tweeted about going private with a particular intent rather than “recklessly” dashing it off."
https://finance.yahoo.com/news/heres-doj-prove-case-elon-mus...
If the SEC gave Elon a slap on the wrist with such a low bar ( recklessness ), I'm guessing DOJ won't have much of a case with their high bar. I can see musk being reckless. I can't see him being involved in stock manipulation. The guy has a $20 billion net worth. But I guess we will have to wait and see.
When it first happened many on HN said “it’s not a big deal”, “the SEC won’t care”, “they can’t prove anything” and “they won’t ask him to step down as chairman”.
And yet here we are.
What were they right about?
> When it first happened many on HN said “it’s not a big deal”, “the SEC won’t care”,
But you just said most HN comments were right?
> “they can’t prove anything” and “they won’t ask him to step down as chairman”.
Can you show me one comment that even talked about chairman?
> And yet here we are.
Yes here we are. Nothings changed. Musk/TSLA got a tiny fine. Gave up his chairman which doesn't really matter since he is the largest shareholder.
Right now shorts are burning. Hopefully you aren't one.
Tesla is a speculative investment, and it is largely one of backing Musk, an unpredictable but seemingly brilliant engineer come businessman.
I’d much rather see the $40m distributed to people who really need the money, ie the homeless etc.
I’d imagine $30m of this $40m will go straight back to investment banks. Hardly a group who “need” the money.
Edit: downvoted, wtf?
This is why people like Steve Jobs and Elon Musk succeed.
His ability to decompose highly technical objects (rockets, cars) and re-consider the economics supporting them to make them viable is impressive.
I may have overstated him being a “brilliant” engineer, but “very good” would seem to be an understatement.
Engineering is as much about designing things for resiliency as it is about designing things to be economically viable.
Here's an interview with Tom Mueller, the SpaceX lead propulsion engineer since inception, about (among other things) working with Elon. Note particularly the discussion of "face shutoff", which is an approach to sequencing engine startup which Musk insisted on over Mueller's initial objections, because Mueller thought it would be too hard to make it work in an engine the size of the Merlin. They ultimately did, after blowing up a lot of test hardware. The result was a simpler, lighter, more reliable engine -- which they wouldn't have had if Musk hadn't insisted they try, over Mueller's objections.
https://zlsadesign.com/post/tom-mueller-interview-2017-05-02...
It saddens me to see how many of you assume, apparently w/o question, that buerocrates at the SEC could and should, at will, use their made up rules to excommunicate or jail the founder and leader of a ground breaking companies.
You say "but, justice is blind." However, enforcement is targeted. Plus, the people I know believe in Elon (No, we're not on a first name basis, the name "Elon" is iconic and doesn't require a last name.) and not Tesla as a company. Without the key innovators and producers, most tech companies would be worthless.
Now, wouldn't it be delightful to watch Elon sell his stake and exit Tesla entirely, just to prove a point? Surely, in a short period of time, even w/ their new golden boy CEO, Tesla would fold; ala Apple Computer, Inc. W/o Steve Jobs. All the short positions could finally win (yea!). After which, Elon could buy back Tesla and take it private. With acts like Sarbanes Oxley and Dodd-Frank, who would want to run a public company?
If you disagree, go found and operate a few successful businesses. Report back in a decade.