
Tesla’s Musk pulled the plug on a settlement with the SEC at the last minute - justin66
https://www.cnbc.com/2018/09/28/teslas-musk-pulled-plug-on-settlement-with-sec-at-last-minute.html
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danso
> _Musk reportedly refused to sign the deal because he felt that by settling
> he would not be truthful to himself, and he wouldn 't have been able to live
> with the idea that he agreed to accept a settlement and any blemish
> associated with that, the sources said._

What is he even thinking here? The evidence seems pretty clear that he did not
have funding or investors secured at the time of the $420 tweet — judging by
the unprepared and panicked reaction of his investors and executives an hour
afterwards. Is Musk claiming that he truly did have funding secured despite
all external evidence to the contrary?

I really hope this won’t also be his mentality for fighting the libel suit.

~~~
rohit89
I think Musk sees his tweet as "I have a possible buyer". Funding was secured
in the sense that the potential buyer had the funds.

~~~
JumpCrisscross
> _Funding was secured in the sense that the potential buyer had the funds_

Refusing the settlement was stupid. Not only is he likely to lose, almost any
defense will rely on him showing he didn't understand the words "funding
secured" which will then open Tesla up to shareholder lawsuits.

~~~
rohit89
Definitely stupid. I want to know what his lawyers think of this. Surely they
would have impressed on him the odds of success if it went to trial. How long
will SEC case take?

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denzil_correa
> Under the terms of the deal, Musk and Tesla would have had to pay a nominal
> fine, and he would not have had to admit any guilt. However, the settlement
> would have barred Musk as chairman for two years and would require Tesla to
> appoint two new independent directors, reported CNBC's David Faber, citing
> sources.

I don't think the fine was a problem here for Musk.

~~~
ckastner
Ironically, barring him for two years and appointing two new independent
directors would probably be a huge win for Tesla.

~~~
toomuchtodo
I think it'd be a huge win for short term Tesla investors and Tesla, but not
long term investors. Tesla's financials should be pushed as hard as possible
to enable scaling rapidly (every dollar not needed in opex should be going to
capex or r&d).

Independent directors (in my opinion) would prioritize saving Tesla as an
ongoing concern, even if it meant they remained a small boutique manufacturer
(vs growing into an energy storage powerhouse).

TL;DR I want Captain Ahab at the helm, chasing his White Whale, swinging for
the fences. I don't want Bob Lutz or Lee Iacocca.

~~~
compcoffee
> _TL;DR I want Captain Ahab at the helm, chasing his White Whale, swinging
> for the fences._

I want people with the integrity not to commit securities fraud.

~~~
Cthulhu_
What about the people that would benefit from Tesla's stocks dropping and did
a big media push to highlight Tesla cars' shortcomings? It's not normal for a
car accident to be in the media for weeks afterwards.

~~~
matwood
Why do you think there is some grand conspiracy? Media attention works both
ways. TSLA/Musk forced themselves into popular culture and they have
benefitted greatly (a completely disconnected from reality stock price that
has allowed them to raise an enormous amount of debt) from that free media
attention. But, it also means increased scrutiny. It is a similar situation
with Apple and iPhones. If the Pixel has some bug, you might see a blip on an
Android fan site. If the iPhone has a bug it makes headlines for days.

------
remote_phone
Musk continues to make very, very poor decisions, over this last year. If his
decision-making for things like this are so poor, I can only imagine how poor
his decisions are behind the scenes for things concerning Tesla itself.

I wonder what happened. My guess is that he must be on some sort of medication
due to his battle with the Model 3. The tweet in question was inexplicable and
I was very tempted to short the stock when I heard, but I didn’t want to bet
against Musk. Now he seems mentally so fragile and his ability to lead Tesla
is seriously in doubt.

~~~
vertline3
The "who wears short shorts" music video he linked is where I started to think
the shorts were really getting to him. In his defense there was a lot of
negative spin likely originating from his short sellers, who had the largest
short position of any stock I think.

Most companies CEOs are really careful and always act like nothing is wrong
even as the ship sinks. In interviews Musk was refusing to answer certain
questions from reporters accusing them of being from his short sellers, it all
makes me wonder if the financials aren't so rosy.

~~~
nostrebored
How is it spin? The metrics for Tesla were/are not promising and they were
already being looked at by the sec for potential fraud regarding those metrics

~~~
vertline3
It becomes spin when several stories are floated in order to erode confidence
in the company. Musk's accusations were that much of the negative press was
coming from shorts or competitive rivals, wether that be energy companies or
car companies. The truth for me lies in between.

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ckastner
If he wouldn't have been able to live with the idea of a settlement, he's
probably going to have a _really_ hard time with the outcome of the lawsuit.

------
EADGBE
Almost every year, I end up owing a lot of income taxes; a calculation that I
always tend to mess up in order to gain a bit of advantage with the tax laws.

I usually just pay the tax bill, and move on. I'd love to be true to myself,
too. But sometimes it just doesn't work. You mess up, you admit it, and no one
is mad anymore.

You can lose a battle, but win a war.

------
woodandsteel
I am a huge fan of Musk, but I hate to say that I can see the SEC's side. In
corporte finance, which is what the SEC is responsible for regulating, the
phrase "funding secured" has a precise meaning, and the situation Musk
described did not come close to meeting it.

Musk may not have been trying to manipulate the stock price when he said
funding was secured, but if he was allowed to speak in such a sloppy,
misleading manner, then other CEO's would start doing too too, which would
have very bad consequences. So the SEC has to come down on Musk as hard as it
can, and it has great powers for doing this.

------
godelmachine
Just one question for all HNer's here.

Once this trial commences, how long will it take for the final verdict to be
out?

Not much acquainted with the US judiciary, but the initial chargesheet by SEC
says they demand a jury trial.

~~~
rory096
Could take years, per the article.

>Since Musk so far has chosen to fight this, it could take years to reach an
outcome, said Bernstein analyst Toni Sacconaghi in a note Friday.

~~~
chaosbutters314
Maybe a dumb question, if it takes years, and in that time tesla becomes
profitable enough that Elon takes it private, could he escape some of the
penalties that way?

Like, did he realize that since the trial will take so long that by the time
it is done, he will be able to circumvent some of the harsher penalties?

~~~
gamblor956
No, the penalty is being permanently barred from being an officer or director
of any public company. If he goes to trial, there isn't going to be any middle
ground.

~~~
Klathmon
But would that impact him if he were to take Tesla private before being barred
(as in this hypothetical, he wouldn't be an officer or director of a public
company, just of a private one)?

------
bsbechtel
I'm not arguing Musk's tweet wasn't ill advised, but this seems to say a lot
about how fragile our system is if 140 poorly thought out characters can cause
so much damage. What about the fiduciary duty of all those investors who
changed their positions based on this information? If you are putting millions
of dollars at risk based on a cryptic tweet, you are failing at your job as
much as Musk failed at his, and you don't deserve to be protected by the SEC.

~~~
harryh
One of the SEC's core jobs is to protect investors from corporate officers who
lie to them about the state of the public companies that they are running.
This is precisely what Elon Musk did.

~~~
chaosbutters314
Were they around during Enron?

~~~
harryh
There was a huge investigation of Enron by the SEC. Among other things, CEO
Jeffrey Skilling was barred from ever again serving as an officer of a public
company.

He also spent ~12 years in prison (Though that was a separate action. The SEC
can't send people to prison).

------
jaimex2
I'm surprised how swiftly the SEC is moving, could they really build a strong
case that quickly?

~~~
jcranmer
Musk has explicitly admitted that the "funding secured" was actually based on
conversations with the Saudi sovereign fund, which appear to have been at a
stage where they were still negotiating conditions (such as building a Tesla
plant in Saudi Arabia). All the SEC has to do is show that the conversations
with the Saudi fund did not constitute a verbal agreement to any reasonable
observer (which means, were Musk to believe that he had a verbal agreement, he
was being reckless in that belief).

This isn't a case where someone committed a crime and carefully tried to hide
their actions; this isn't a case that hinges on misunderstandings of the law.
It is a case where someone essentially said "this is a final decision" and
later clarified "by final, I really meant this was in preliminary stages, but
I'm confident it can be finalized quickly."

~~~
Retric
'Considering' does not suggest the deal was final. 'Secured' does.

That's a lot of ambiguity for the average layperson on a jury. I assume the
SEC has a strong case, but this stuff is nuanced.

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brtknr
Is this what you get to do if you’re a billionaire? Fight lawsuits?

~~~
Cthulhu_
Nah you have a legal team to do that for you.

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forkerenok
I think it comes from the same thing: he doesn't want to lose (yet another
one) to the shorters. And he is OCD about it.

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hef19898
Ok, when has it ever been a good idea to piss off the SEC? They offer you a
deal, let you off rather easy in exchnage for some symbolic concessions after
you did something not to smart resulting in some unwanted stock movements. And
then you tunr your back on that deal, and the SEC. What exactly do you expect
will happen afterwards?

~~~
mtgx
Mark Cuban did it and won.

~~~
toomuchtodo
Musk has hired white collar attorney and former Southern District AUSA Chris
Clark of Latham & Watkins (who successfully defended Cuban against the SEC).

------
onepremise
idk, a part of me wished he had dirt on some of these short trading firms,
Greenlight Capital, etc. Short sellers do seem to have uncanny timing for
playing press releases, especially when they are false. Lots of manipulation,
especially in crypto, causing enormous losses. However, rarely do I see the
SEC go after these guys. I would like the SEC to go after both, not just Musk,
if it does turn out he defrauded investors. I admit, I want to see Tesla
succeed, but not at the expense of HODLers, owners, and tech enthusiast. Musk
doesn't need to be at the helm of Tesla for it to succeed. We just need
somebody in there that can stabilize the excessive spending and research,
start reducing the debt incurred. If Tesla can ever shed the debt, they wont
have to worry about short sellers and the TSLA share price.

~~~
JumpCrisscross
> _rarely do I see the SEC go after these guys_

What would they go after the short sellers for? Shorting incentivises bubble
popping and private antifraud research. I can't think of a single time short
sellers trashed a healthy company, yet I can think of several times short
sellers pricked something foul before it got too far along.

------
_louisr_
I'm glad that this article has hot takes from two random investors! One says
Elon has a 25% chance of staying CEO, the other says that Tesla won't be able
to raise capital with this bad news. Sweet, now I have my talking points to
regurgitate to my friends & can stop thinking. Thank you CNBC and modern
media.

------
jiveturkey
maybe he feels he can point to his pedo tweets as evidence that he’s a buffoon
and people shouldn’t believe what he says?

~~~
joshstrange
That strategy "worked" for the president when he called Omarosa a "Dog"

------
gdsdfe
Isn't by suing him they hurting the investors more?

~~~
yAnonymous
Take your sound logic somewhere else, please. We are in the midst of a
shitstorm here.

~~~
mcguire
Which hurts investors more, a suit against a single company or a system that
allows corporate officers to lie about material facts of their companies?

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itayadler
Who will sue the SEC for causing the stock to plumet due to this lawsuit? :x

~~~
mrfredward
Why blame the fraudster, when you can blame the people fighting fraud?

~~~
onepremise
Have you seen what the SEC has been doing to crypto? You're telling me the
chairman appointed or Trump couldn't stand to benefit from their decisions?
[https://www.investopedia.com/tech/bitcoin-vulnerable-sec-
man...](https://www.investopedia.com/tech/bitcoin-vulnerable-sec-
manipulation/)

~~~
zone411
Why don't you tell us, what horrible things has he been doing to crypto? And
how will the SEC chairman and Trump benefit?

