
Tesla, Musk must face shareholder lawsuit over going-private tweet - Hoasi
https://www.reuters.com/article/us-tesla-musk-lawsuit-idUSKCN21X33A
======
slg
It is interesting to note that the price Musk mentioned was $420 per share
while the stock closed at just under $730 per share today and was as high as
$969 (EDIT: actually more like $900, see computerex's comment below) per share
before the Coronavirus selloffs began. I point this out not to defend Musk (he
is often an idiot, especially on social media), but to point out that the
people still angry about this are likely Tesla shorts and day traders. Anyone
who is long on Tesla likely couldn't care less.

~~~
beamatronic
How is their stock going up when they aren’t even making cars right now?

~~~
josefx
Because it was higher before, may reach those heights again and people think
that right now is a good time to buy in?

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nickff
The problem with this lawsuit is not that Musk is innocent; the problem is
that shareholder lawsuits against companies simply transfer money from the
company to the lawyers, and to shareholders who sold their stock between
discovering the fraud and disclosing it (a relatively small subset of the
supposed 'class'). Shareholder lawsuits against executives would be a better
way of policing fraud, but they are uncommon, likely because they are not as
lucrative for lawyers.

~~~
projektfu
So it’s unjust? Have you ever seen a civil lawsuit?

~~~
thaumasiotes
It's not that it's unjust; a shareholder lawsuit is conceptually incoherent.

The idea is that, in your capacity as owner of the company, you sue the
company for screwing you over, and it pays a fine to you. But that makes you
worse off, because it makes the company worse off, and you own the company.

In the best case scenario, where the suit is costless and 100% of the fine
goes to shareholders, the shareholders come out of the suit no worse off --
and no better off -- than they were before they sued.

In any other scenario, they come out worse off.

Imagine that I accidentally hammer my thumb and sue my hammer for the injury.
I find it guilty and have it destroyed. How did my situation improve? All that
happened is that I'm down a hammer.

~~~
gamblor956
Shareholder lawsuits make sense, because the shareholder is seeking redress
from a _specific harm_ to them caused by the company. The long-term effect
this may have on the company is irrelevant to the suit, especially for
publicly-traded companies where individual shareholder ownership is so small
as to be immaterial at a per-shareholder level.

 _Imagine that I accidentally hammer my thumb and sue my hammer for the
injury. I find it guilty and have it destroyed. How did my situation improve?
All that happened is that I 'm down a hammer. _

Your hammer is literally just an extension of you so you are just suing
yourself. _A company is not just an extension of its shareholders._ In fact,
the whole point of the corporate form is that the business _is separate_ from
its shareholders legally, financially, and for all purposes (except for some
reason First Amendment rights).

~~~
thaumasiotes
> because the shareholder is seeking redress from a _specific harm_ to them
> caused by the company

Specifically, the harm they're seeking redress from is a drop in the value of
their stock.

And the redress they are seeking is _also_ a drop in the value of their stock.

This is the conceptual problem. Shareholders have not suffered any harm _that
can conceivably be redressed by a shareholder lawsuit_. The only possible
effect of the lawsuit is to hurt the shareholders even more than they were
hurt before.

~~~
gamblor956
Shareholder lawsuits only hurt shareholders at the time of the lawsuit.

They can be filed by shareholders who were harmed by prior corporate account.
Not sure for this concept is so hard for people to understand.

TLDR we're taking about different groups of shareholders.

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crazygringo
Yikes, I was afraid there was a new tweet, but this is still the infamous 2018
one.

Still, I'm a bit confused -- as much as I think he deserved to be
fined/punished for it, the $20 million SEC fine did that.

It seems like he should be subject to an SEC fine _or_ a shareholder lawsuit,
but not both -- isn't it redundant? I would assume that the SEC fine was
calculated as an "appropriate" punitive amount -- not a punitive amount minus
what they expected a shareholder lawsuit would also result in?

~~~
H8crilA
$20M is probably at least two orders of magnitude less than the total losses
people suffered as a result of this lie. It is almost certainly not
"appropriate" in the damages sense. It may be a sensible fine ($1k may be a
sensible fine to someone who has no money); it does not cover damages
whatsoever.

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CivBase
What Musk did was certainly unethical, but it highlights how dumb the stock
market really is. At what point is the investor expected to take
responsibility for bad investments based on speculation?

~~~
tree3
> At what point is the investor expected to take responsibility for bad
> investments based on speculation?

How is making trades based on statements from the CEO speculation?

~~~
CivBase
Elon _tweeted_ that he was "considering taking Tesla private". It clearly was
not a done deal. Evaluations were made based on speculation that Elon would
follow through. He obviously did not. The stock value temporarily spiked and a
lot of investors looking to profit off the ordeal ended up making bad
investments and lost big. At the end of the day, the stock market is akin to
gambling and sometimes you loose.

Elon's actions were irresponsible at best, but I think suing him sets a bad
precedent. There doesn't seem to be any evidence of insider trading. It seems
to me like some investors are just mad that they lost money because they put
too much stock in Elon's twitter feed.

~~~
thomaskcr
He said "funding secured", the board knew nothing of what was going on and
scrambled to make it retroactively true.

> because they put too much stock in Elon's twitter feed.

That would be a wonderful argument, if the company had not put into an actual
8K that Elon's twitter is a source of official information about the company.
[https://www.sec.gov/Archives/edgar/data/1318605/000119312513...](https://www.sec.gov/Archives/edgar/data/1318605/000119312513427630/d622890d8k.htm)

"Tesla investors and others should note that we announce material information
to the public about our company, products and services and other issues
through a variety of means, including Tesla’s website, press releases, SEC
filings, blogs and social media, in order to achieve broad, non-exclusionary
distribution of information to the public. We encourage our investors and
others to review the information we make public in the locations below as such
information could be deemed to be material information."

"For additional information, please follow Elon Musk’s and Tesla’s Twitter
accounts: twitter.com/elonmusk and twitter.com/TeslaMotors"

~~~
CivBase
> He said "funding secured", the board knew nothing of what was going on and
> scrambled to make it retroactively true.

Yeah, that's pretty irresponsible. I don't see how it changes things, though.

IANAL, but I suspect there's a difference between "follow Elon's twitter
because he might release material information there" and "everything Elon
tweets is material information".

I have no desire to defend Musk or Tesla. The practice of distributing
official information via social media posts is pretty sketchy. But that such
an arrangement is even possible only continues to highlight how dumb the stock
market is. The more I learn about this, the more it sounds like investors
playing with fire and whining when they get burned.

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Traster
It's very difficult to argue that this wasn't a gross failure in Musks'
fiduciary repsonsibilities. Although he's bought his way out of other
egregious fuck ups in the past.

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radium3d
"U.S. District Judge Edward Chen ruled on Wednesday that shareholders could
try to prove Musk intended to defraud them with his Aug. 7, 2018 tweet and
follow-up messages about plans for his Palo Alto, California-based company."

Placing my bet that he did not >intend< to defraud them. Going to cost them a
pretty penny to try to prove something that didn't happen.

~~~
gamblor956
This is a civil suit, they only need to prove that it was more likely than not
that Musk intended to defraud investors.

Given that Musk's salary is based on the value of the stock, and that Tesla
needed the stock to increase in value to avoid financial triggers, there is
already sufficient pro forma evidence to satisfy the intent prong.

Unlike in criminal court, the true burden will be on Tesla/Musk to show that
they did not intended to defraud investors. Given Musk's history of making
misrepresentations, this will be a difficult task and it is very likely they
will settle out of court instead of take this to trial.

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papermachete
$420?

He was making a joke and some money-havers were to dumb to spot it. Suing Musk
over a tweet is like me suing Forbes about their forecasts, and I'm a nobody.

~~~
happytoexplain
I occasionally see this sentiment regarding investment. It's terrifying how
some people believe that such dramatically unethical crimes are totally fine
in these less direct contexts where a small number of powerful people hurt
many "stupid" people who "deserve it". E.g. you see the same attack made on
people struggling with student loans, based on a simplified version of reality
that hyperfocuses on the personal responsibility of people lacking power.

~~~
papermachete
If your million/billion dollar deals are swayed by social media and jokes, you
need better risk management.

~~~
detaro
"social media" == "a channel Tesla told the world to expect financially
relevant disclosures in" in this case.

------
m0zg
And that's how you know the situation is improving in the world. The shorts
are back to manipulating TSLA through their lapdog - mainstream press. The
lawsuit is a nothingburger that will go nowhere. It's kind of difficult to
prove shareholder injury if the stock doubled since then.

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arrty88
They will settle for a billion or so and call it a day

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firasd
The situation with Elon is kinda complicated. I almost never side with his
haters (short-sellers, Brooklyn socialists etc) but there’s no doubt he does
some objectionable things from time to time.

Long before the more recent controversies I remember probably the first thing
that turned me off a bit was when someone wrote a critical piece about a
launch event and Tesla cancelled his car purchase.. (Incidentally I looked up
that incident and saw PG kinda didn’t like it either
[https://twitter.com/paulg/status/694892884508553216?s=21](https://twitter.com/paulg/status/694892884508553216?s=21)
)

~~~
voz_
> I almost never side with his haters (short-sellers, Brooklyn socialists etc)
> but there’s no doubt he does some objectionable things from time to time.

This may be one of the oddest sentence to read on HN. What are you talking
about?

Also, regarding canceling someone's car purchase for writing a critical piece,
why do you see that as a bad thing? or a good one?

~~~
CamperBob2
I think a lot of us would prefer to maintain a cognitive Chinese wall between
the companies we deal with and our underlying opinions about them, and would
prefer that the companies have the same attitude towards us. I'd like to be
able to criticize specific products and policies by Google, for example,
without putting my entire Google account at risk. It seems like that's how it
works with Google or even with (post-Jobs) Apple, and that's a good thing.

The last time I bought a new car, though, I filled in the manufacturer's
survey in painstaking detail, calling out points I liked, aspects I didn't
like, and a few things I considered ridiculous or unacceptable. Apparently my
responses not only made it back to the local dealer, but earned me a
reputation on the sales floor as a dissatisfied customer -- or worse, an
unsatisfiable one.

It never occurred to them that if I were really annoyed or disappointed in the
car, or had any kind of personal beef with its manufacturer, I wouldn't have
wasted time filling out the survey in the first place. I answered the survey
honestly and comprehensively because I plan to buy more cars from them in the
future and would like my input to be considered.

Companies need to understand that the opposite of love isn't hate, but
indifference. When someone takes the time to criticize you in detail, you
don't have to take it as a declaration of war. You can always ignore _them_ if
you don't feel their input has merit. From hearing all these anecdotes over
the years, I'm under the impression that Tesla takes things a little too
personally.

~~~
fastball
If your overall impression of a car was _negative_ before you got the car,
surely you wouldn't go through with the purchase? There must be cars that you
have a generally _positive_ view of and therefore want to purchase, no? There
are a lot of cars...

~~~
CamperBob2
I don't follow you; that's not what I said at all.

Then again, maybe that was the original problem. :)

------
lazyjones
Good luck to the "shareholders" (I assume they are not long) trying to prove
Elon was defrauding them. All shareholders now have a hugely better value than
before he tweeted that.

~~~
FireBeyond
What part of "I have secured funding for taking Tesla private" was accurate
and honest? If he had not secured funding, how was his statement not
deceptive?

And if you sold shares based on his statement, OR as a result of the
enforcement activities that came after, then you lost potential earnings, as a
result of (reacting to) his statement.

Martin Shkreli's investors made a profit. But he was still guilty of running a
fraudulent pyramid scheme to get them that profit.

~~~
lazyjones
> What part of "I have secured funding for taking Tesla private" was accurate
> and honest?

We don't know. He might have chosen to not disclose his discussions with other
people.

> If he had not secured funding, how was his statement not deceptive?

He might have meant it in earnest. For fraud, surely he must have had the
intention to profit from it personally at the expense of shareholders?

> And if you sold shares based on his statement,

Who would have done that and with what reasoning? Why would you sell for a
lower price if you believed you'd get $420 very soon? That's a silly notion.

> a fraudulent pyramid scheme

A pyramid scheme is by definition a system where most (i.e. the last)
investors get screwed, i.e. they don't make a profit.

~~~
FireBeyond
> He might have chosen to not disclose his discussions with other people.

Including the SEC?

> He might have meant it in earnest.

You can be as earnest as you like and still be capable of making statements
that are factually incorrect. As to your previous point, one would presume
that an absolute defense against the SEC's charges about making materially
false statements would be to show that said statements were not, in fact,
materially false. That didn't happen though.

> For fraud, surely he must have had the intention to profit from it
> personally at the expense of shareholders?

You mean the hope that the share price would go up, with him as a large
shareholder. "At the expense of shareholders" would include "shareholders who
may have bought, sold, or changed their strategies, or not, based on Mr Musk
not making said statements as a matter of fact, that weren't".

