
Tesla Faces U.S. Criminal Probe Over Musk Statements - whatok
https://www.bloomberg.com/news/articles/2018-09-18/tesla-faces-u-s-criminal-probe-over-musk-statements
======
chollida1
The sad piece of karma in all of this is that Musk tweeted in an effort to
destroy the shorts.

His tweet turned out to:

\- give the shorts a big dip in his stock,

\- an investigation by the SEC

\- an investigation by the DOJ

\- the backing off of a deep pocketed investor in the Saudis

\- Him potentially being personally liable, which would mean having to step
away from SpaceX and Tesla if he was found guilty of fraud.

This could be the biggest thing to come out of all of this. Imagine Elon
getting a 2 year ban on begin an executive in a company. Or SpaceX not being
able to bid on government contracts because their CEO is a felon.

There is going to be a lot of backroom dealing to do everything they can to
prevent Elon from being charged.

\- A lawsuit that is seeking class action status for anyone who was short at
the time of his tweet.

\- this is speculation, but it must have really strained his relationship with
the board. I mean you can only fight so many battles at once, you'd think
you'd want to have the board on your side

All to screw with the shorts, who really have no power what-so ever to hinder
Telsa. If he had just not used twitter he and Tesla would be better off and
the shorts would be worse off.

~~~
thedaemon
Please define shorts. Google was unable to figure it out.

~~~
mcbits
Short sellers. People who sell something they don't own, speculating that they
will be able to buy it later at a lower price.

If so, they make money. If not and the price goes up a bit, some shorts are
forced to buy at the higher price to limit their losses. That pushes the price
up further, forcing more shorts to buy, etc., causing a "short squeeze" where
the price rapidly shoots up very high, "destroying" a lot of shorts.

~~~
kasey_junk
Pedantically shorting doesn’t _have_ to be borrowing the underlying
instrument. Put options are another way to trade on the idea that a stock will
go down. I’d actually bet it’s the more common way. It would still be
colloquially referred to as being short.

~~~
mikestew
That's actually the opposite of "pedantically" given that you're playing loose
with the definition. Pedantically, shorting is selling a financial instrument
you don't own, with the idea (though it is not a requirement to fit the
definition) that you'll give it back later by buying at a price lower than it
is now.

What you described is options trading, one method of which hedges against
declines in stock price. Yeah, one could take a "short" position by buying
puts, but it can be argued that a short position is not what puts were
originally designed for. In contrast to short sellers who obviously intend for
the price to go down, or they won't make any money.

I do question whether puts are the "more common way" given that they have an
expiration. You can hold on to a short sell as long as you can pay the
interest and the loaning party doesn't want their shares back.

~~~
Boxxed
Arguing over the definition of Pedantic. I think we've reached peak HN.

------
S_A_P
Sometimes its possible to care so much that you lose sight of what is
important. This happened to Elon. I think this will be a case study someday
about CEO ethics. I found it very interesting that when he was on the Joe
Rogan podcast he had so much to say about social media, and none of it was
complementary. How he did not see the dichotomy of his twitter use and this
situation strikes me as humorous. I feel like Elon needs to find some new
handlers and get some team members that can keep him from shooting himself in
the foot.

I only recently got back on twitter. I do not use my likeness or use it for
any other reason except to find out about things I consume(stand up comedy,
concerts, etc). Twitter is a great platform for that. Its an awful platform
for speaking your mind when you run a company(or the country)

~~~
_Codemonkeyism
"I'm using social media the right way, the others are doing it wrong and I
wish they'd go away". Always the same line of thinking.

~~~
stcredzero
_" I'm using social media the right way, the others are doing it wrong and I
wish they'd go away"_

"We're using our sovereign power and military force the right way. The others
are doing it wrong, and we wish they'd go away."

Same old story. In one of Raymond Smullyan's books, there was a story of a
word the US codebreakers in WWII couldn't quite translate. In the end, they
settled on "pro-Japanese" as a shaky translation. Years later, a retired
codebreaker is talking to a retired Japanese soldier, and is told that the
code term meant, "sincere."

------
harryh
There are a lot of things to respect about Musk.

But he lied on twitter in a direct effort to cause financial harm to people
shorting Tesla stock. You can't do that. He should go to jail.

~~~
abalone
This is a massive oversimplification. Musk may be in peril but this is not as
cut-and-dried a case of fraud like you make it seem. Consider this recent
comment from the SEC:

 _“When you talk about fraud,” [Jina Choi of the SEC] answered, “you’re
talking about a state of mind, you’re talking about mens rea. We call it
scienter. You have to do something with intentionality. The idea of just
making a misstatement doesn’t necessarily rise to the level of fraud. "_

 _Misstatements can “be the first step to fraud,” Choi had added. “But
generally, when we talk about fraud the F word, I think we are talking about a
state of mind that’s a little bit higher than that.”_ [1]

That telegraphs a pretty lenient stance on misstatements that aren't
completely fabricated. And there were actual serious negotiations happening
here. That's not in dispute.

Without question, Musk made a misstatement. But what was his state of mind?
Was there intent to deceive, or was he merely overzealous in his
interpretation of the negotiations? If he can argue the latter then it may not
rise to the level of criminal fraud.

[1] [https://techcrunch.com/2018/09/13/a-tesla-investor-says-
he-w...](https://techcrunch.com/2018/09/13/a-tesla-investor-says-he-was-
recently-questioned-by-u-s-regulators-about-that-infamous-funding-secured-
tweet/)

~~~
JumpCrisscross
> _That telegraphs a pretty lenient stance on misstatements that aren 't
> completely fabricated_

American commercial law goes out of its way to avoid criminalizing stupidity.
At a certain level, the difference between a genius and a madman is the genius
was correct. They are indifferentiable without the benefit of hindsight.

The nail in Elon's coffin (or lack thereof) will probably revolve around the
degree to which he documented his animus towards short sellers in the days
leading up to the misstatement.

~~~
abalone
Nah, it's clear Musk hates short sellers. That's not the issue. Nor is his
desire to hurt them. The question is whether he had scienter when misstating
the finality of the deal he was negotiating.

~~~
JumpCrisscross
> _That 's not the issue. Nor is his desire to hurt them._

That's a huge issue. If he made his misstatements with the intent of hurting
short sellers, that's criminal fraud. If he just made a material misstatement,
with no intent to harm anyone, it's a civil case.

~~~
abalone
You inserted "intent". That is the key question, not whether he dislikes short
sellers.

Every CEO dislikes short sellers, and nearly every CEO makes "material
misstatements" now and then. What separates that from fraud is what the SEC
focused on in their comment: scienter.

~~~
gamblor956
You keep throwing around the word "scienter" without understanding what it is.

Scienter just means intent. It's literally just the fancy legal term for
intent.

Thus, it matters very much that Musk has a history of trashing short sellers
and wishing harm to them, because they can use that history to establish that
his tweet was made with the intent to defraud market participants and
materially affect the price of Tesla's stock.

Especially the "funding secured" bit. You don't say "secured" if it's not
really secured. There is no legal interpretation where "secured" is a harmless
mistake.

~~~
abalone
I have been using scienter and intentionality interchangeably. I think it is
you who is throwing around fancy-sounding terms like "legal interpretation"
without really knowing what they mean.

Again, every CEO dislikes short sellers and literally everything they do to
talk up the company hurts shorts, by definition. You don't need any tweets to
establish that. It's a given. And every CEO misstates things and makes errors
and in big companies every statement moves the stock price. The issue is
intent.

What you are doing is focusing on the misstatement, adding in fancy sounding
terms like "legal interpretation", and whipping that up into intent to
defraud. But as the SEC _explicitly addressed in the cited comment_ , they set
the "state of mind" bar higher than mere misstatements. You are going to need
more than that to establish scienter.

Your fancy term aside, there actually are other interpretations of his
comment. He may have been overzealous. He may have overestimated his investors
intent.

Let's look at it another way. Musk is a reasonably smart guy. How far was he
going to get with this alleged scheme to intentionally defraud the market? How
long until everyone realized the funds were not actually secured and the fraud
was revealed? Like, 2 hours? That would be the stupidest fraud in the history
of frauds. The conclusion is that, perhaps he actually believed the deal would
come together. Erroneously, but erroneous statements are not enough for fraud;
the key factor is state of mind.

------
minimaxir
Notably, this now involves the _DOJ_ , not just the SEC.

~~~
tomatocracy
That's likely because the SEC does not have the power to undertake criminal
prosecutions.

------
nostrademons
Imagine a private company with ballistic missiles and submarines...

I was musing the other day that Elon Musk may be planning to run for
president. Why? Well, if there's one thing that 2016 showed us, it's that the
road to the White House runs through snubbing Wall Street, calling the press a
bunch of boring liars, accusing your opponents of pedophilia, making bizarre
incoherent tweet storms in the middle of the night, and bragging about the
size of your rocket.

~~~
khamoud
It'd be funny but since he was born in South Africa he's disqualified from
running.

~~~
monocasa
Ted Cruz was born in Canada. The naturalization requirement is a lot looser
than you might think.

~~~
cortesoft
He was born a US citizen though. The requirement isn't that you are born on US
soil, but that you are born a US citizen. John McCain was born in Panama.

~~~
curtis
John McCain's citizenship was more complicated than most people realize. See
[https://en.wikipedia.org/wiki/Natural-born-
citizen_clause#Jo...](https://en.wikipedia.org/wiki/Natural-born-
citizen_clause#John_McCain).

~~~
djsumdog
huh. I never realized this. Thanks for the link.

------
ivraatiems
I'm curious - supposing HN had the power to decide, would you replace Elon
Musk as CEO of Tesla? What kind of future does the company have without its
founder?

Personally, I think I would be much more confident in Tesla, and much more
likely to buy a Tesla product, if he were not in charge.

~~~
pastor_elm
No. Use the Apple model. Steve Jobs was needed until the IPhone was really
established (not to mention the IPod.) Only then should you bring in a guy
like Cook.

~~~
maceurt
Completely different scenarios, completely different companies. Steve Jobs was
never the technical guy, he was more the visionary. He could get away with
that, because he had really smart engineers and producing phones and computers
is a lot simpler than producing cars. Elon Musk is a genius, but what does he
really know about production or getting the cost down for an electric car more
than any other CEO of a major auto company? Elon Musk is a visionary, but a
visionary for an auto company is not as vital as a visionary for a tech or
computer company. They need a guy in tesla who can increase production and
lower cost, or sell at a different price point and change target market for
their cars. They don't need someone who is going to tweet out a lot of
reckless things while hemorrhaging money for the company.

------
overcast
The frequency of these bizarre actions by Musk are going up. Is he seriously
just cracking under the pressure of having way too much on his plate? The dude
is obviously a genius, but he's turning into a mad genius.

~~~
drb91
Why do people keep calling him a genius? His main distinction is his money and
DESIRE to build interesting things. Nowhere is his staggering, extraordinary
intelligence evident. I’d love to be demonstrated wrong, but this genius
fetishism seems to be harmful with no benefit: the man is running a company.
Judge him on how well he does, not how he’s so intelligent it's so sad he
can't take care of his employees responsibly.

------
scotchio
Can anyone knowledgable of this kind of stuff comment on the likely outcome of
the situation and scenarios (without sensationalizing)? If found guilty, not
guilty, penalty (jail, fine, other), investigation time, length, impact on
other companies like SpaceX, gravity/frequency of the event vs other companies
/ offenses, etc.?

~~~
cycrutchfield
The DOJ couldn’t even prosecute any major banks for the fraud that led to the
financial collapse in 2008. That is how hard it is to prove criminal intent
for white collar crimes.

At best, they settle with Musk for some financial penalty.

------
village-idiot
Tesla would do a lot better if Elon Musk got a social media manager who can
veto his dumbest tweets.

------
lorenzorhoades
Suprising to see here that the majority seem to be anti-Musk. "He's guilty,
send him to jail" without allowing evidence to come forward that these
statements were false.

>"the matter should be quickly resolved as they review the information they
have received."

If anything the public statement says the opposite. I actually believe there
may have been some email, or conversations about a buyout of Tesla. Wouldn't
be the first time, Google almost bought Tesla in 2008 during the financial
crisis.

------
Animats
Next the California Highway Patrol will be after him for texting while
driving.

Tesla might be better off without Musk. It's past the stage where it needs a
visionary. Now it needs someone who can run a big auto manufacturer.

------
aeriklawson
A public lesson for future CEOs to just stay the fuck off social media - Elon
swam far up shit creek purely because of his engagement with Twitter. It's not
worth the trouble.

~~~
SilasX
I wouldn't be surprised if the Board had (at the least) considered restricting
his social media so that his messages require approval from someone else.

------
Asparagirl
The thing is, now that the DOJ has their foot in the door, they may not stop
at the infamous tweet. They're going to look at the books. They're going to be
talking to allllll the recent senior executive departures, some of whom ran
for the hills within days of taking their jobs.

Who knows what kinds of bugs they'll find when they turn over some rocks?

------
HelloFellowDevs
I'm assuming non libel related statements and company related statements only.

------
manicdee
Note: no criminal probe. This is hyperbole.

Note: Martha Stewart did worse and was only found guilty on the coverup and
fraud after the fact.

Note: hit piece by Bloomberg, clearly attempting to manipulate stock price as
they have done for years without any prosecution.

------
scotchio
Another day, another excited slam piece headline against Tesla. Tesla's Nov 7
Earning Report must be good...

In all seriousness, no idea what Elon was thinking with that Tweet.

Gut says, long term Tesla will be fine and little will to come of this
investigation.

~~~
dsfyu404ed
>Gut says, long term Tesla will be fine and little will to come of this
investigation.

Or this could be their DeLorean moment. People's guts are notoriously bad at
predicting the future.

~~~
PakG1
Out of curiosity, what was the DeLorean moment? I know DeLorean didn't succeed
in the long term. But what was this "moment" you're talking about? Google gave
me nothing.

~~~
hfdgiutdryg
Probably DeLorean's attempt to traffic cocaine in order to keep the company
afloat:

> _On October 19, 1982, DeLorean was charged by the U.S. government with
> trafficking cocaine following a videotaped sting operation in which he was
> recorded by undercover federal agents agreeing to bankroll a cocaine
> smuggling operation. The FBI set him up with more than 59 pounds (27 kg) of
> cocaine (worth about US$6.5 million) in a hotel near Los Angeles
> International Airport after arriving from New York, and the Federal Bureau
> of Investigation stated DeLorean was the "financier" to help the financially
> declining company in a scheme to sell 220 lb (100 kg), with an estimated
> value of US$24 million._

------
jv22222
I'm curious, if you are a long, did you upvote this HN submission?

It would be interesting to see how sentiment like that shaped the ebb and flow
of Hacker News.

------
rboyd
first interplanetary flight risk?

------
zerotolerance
The headline is almost as long as the article. Useless article.

------
thiagotomei
Me

------
alottafunchata
unnessercery

------
romed
Good chance that Musk will get placed on the bad actors list and will be
unable to serve as an officer or executive of Telsa.

------
bedhead
I'm not sure what he could be _criminally_ charged with - neither he nor
anyone else at the company sold stock and profited from his idiotic tweets. I
believe you actually need to profit from manipulation in order for it to enter
the realm of criminal.

~~~
camjohnson26
They caused damage to short sellers when the stock price rose because of
Musk's lie and they had to cover their losses, how is that not criminal? You
don't have to personally profit to commit a crime.

~~~
bedhead
To my knowledge, and I'm in the industry, that is not a CRIMINAL act

------
reggieband
I'm starting to get conspiratorially minded about all of this. It began when I
couldn't understand the seeming coordination of the attacks against the Uber
CEO. I mean, he seemed like the same kind of garden variety psychopath I
expect in the role of CEO - why were there so many hit pieces about him
specifically? Now Musk is a new target and somehow everyone is cheering for
him to fail.

Seems like if you get into competition with the auto industry or threaten the
oil industry by attempting to change consumer behavior then you become a
massive target. I actually feel like forces other than public opinion are at
work here.

~~~
keelhaule
especially when the article mentions :p "who were granted anonymity to discuss
a confidential criminal probe" press reliability at its finest

~~~
roywiggins
You think _Bloomberg_ \- of all outlets- is manufacturing sources at the
Justice Department?

------
Latteland
This time the shorts really have him. Or do they?

It turned out Tesla wasn't killed by not being able to make the model 3 at
all, it wasn't on being able to make the model s in larger volumes, it wasn't
because there was no demand, that there would be no demand after various
incentives around the world went down (still some left in the us, also
available to all other car companies by the way), it wasn't because they
couldn't make the model 3 in volume, it wasn't because they'd all catch on
fire and burn up in accidents, it wasn't because the over-promised-over-named
autopilot was dangerous and would kill people, it wasn't because the leaf, the
volt, the bolt, the i3, the i8, and continually forthcoming cars from audi,
porsche, ford, mercedes, bmw killed them. It wasn't because there was a secret
sec investigation was preventing them from refinancing, it wasn't because they
have just lied all this time about selling the cars for less than
manufacturing cost (separate from their enormous money spent on
infrastructure), it wasn't because the batteries would run down and not
survive heat, cold, regular driving, daily driving, supercharging.

It was damn stupid for him to make that twitter comment.

~~~
JoshCole
You may be getting down voted, but you're right that the last several years of
fear, uncertainty, and doubt has been shown to have been bullshit in having
not panned out.

Meanwhile, the last several years of warnings about climate change have been
shown to be a true warning. My mother had to evacuate from a fire. A friend
has had their city flooded. A different friends home was damaged by a
hurricane. I've been begged on the street for a drink during a heat wave.

