Decapitation Strike - Elon Musk In The Crosshairs Of The Bureaucracy

The Most Expensive Tweet of All Time

He finally done did it this time – this is to say, he did himself in. It was already widely known that Elon Musk sent out one tweet too many in early August. But it seems now that what he posted on that fateful day may well end up as the most expensive sequence of nine words ever blasted over the intertubes. For those who haven’t followed the story, this is the tweet in question:

Elon Musk’s fateful tweet – here is a link to the thread on Twitter:  Taking TSLA private fantasy. 

When this tweet was published, TSLA’s stock price rallied by more than 10% on the day to more than $380, up almost $40 from the previous day’s close. Not surprisingly, numerous people immediately complained about Musk’s Twitter ambush. Since around one-third of the stock’s free float is sold short, there was no shortage of victims. The legality of making such an announcement over Twitter out of the blue was widely questioned (rightly so, as it turned out).

The POTUS may one day well declare war over Twitter, but he is not subject to SEC oversight. As the CEO of a listed company, Elon Musk definitely is subject to said oversight. At the time we thought that it was probably not going to be a major problem if it turned out that the tweet involved no factual inaccuracies (i.e.,  if he wasn’t fibbing).

Under pressure to clarify this slightly cryptic tweet – which was obviously bereft of details – it turned out that what Musk had blurted out was not exactly a fait accompli. While the notion of taking TSLA private was indeed briefly discussed with a representative of a Middle-Eastern investment fund, it never went beyond the stage of “this might be something worth thinking about one day”.

(Click on image to enlarge)

TSLA weekly since its IPO in 2010. Despite an income statement that is routinely drowning in buckets of red ink and a balance sheet that can be charitably called a financial time bomb, the stock of TSLA has held up quite well. Although it failed to follow other popular momentum stocks into the blue yonder by going sideways since mid-2017, it never relinquished much of its earlier gains. The company’s bonds have performed a lot worse.

It became very likely at that point that the SEC would become involved, and indeed, it soon did. After a few weeks of ominous silence, it has now launched what is best described as a decapitation strike. Here is a link to the SEC’s complaint (PDF), which is a surprisingly harsh full-frontal attack squarely aimed at dethroning Musk.

He stands accused of securities fraud and if he gets convicted on all counts, he won’t be able to continue as the CEO of Tesla, at least not as long as the stock remains listed. The summary of the complaint first describes why the SEC considers Musk’s tweet to have been intentionally misleading and harmful, and then arrives at the decisive passages excerpted below:

“By engaging in the conduct alleged in this Complaint, Musk violated, and unless restrained and enjoined will violate again, Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder”.

“The Commission brings this action against Musk pursuant to Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)] to enjoin the transactions, acts, practices, and courses of business alleged in this Complaint and to seek orders of disgorgement, along with prejudgment interest, civil penalties, and an officer and director bar against Musk, and such further relief as the Court may deem appropriate”.

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