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Tesla, Musk must face shareholder lawsuit over going-private tweet

71 points by Hoasi 7y ago

Traster 7y ago
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.
nickff 7y ago
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 7y ago
  So it’s unjust? Have you ever seen a civil lawsuit?
  - nickff 7y ago
    I'm not taking a position on whether it's 'just', I am simply pointing out that it primarily benefits the lawyers, and may benefit a few former shareholders. I believe that class-action suits are supposed to benefit the class, both in the judgement/settlement and in changing long-term incentives. Shareholder lawsuits appear to do neither.
    - projektfu 7y ago
      Fair enough but screwing speculators in favor of die hard fans is not enough reason to hold off.
      - nickff 7y ago
        If this were a class-action lawsuit by people who were shorting Tesla stock, or owned some option on it, I would agree that it would be serve the purposes of class-action lawsuits (aside from lawyer-enrichment). But it isn't.
        projektfu 7y ago
        Unfortunately for your position, it’s considered to harm all investors when a key executive mouths off like this.
        nickff 7y ago
        I definitely agree that key executives mouthing off does harm the shareholders; the problem is that these shareholder class-actions against companies do not provide a real remedy to the harmed shareholders. I also agree that courts are allowing these lawsuits to proceed despite hearing objections like mine.
  - thaumasiotes 7y ago
    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.
    - boznz 7y ago
      Buy $100 in shares, and also short it by $100M and I am sure you will come out of this just fine I'm guessing
    - gamblor956 7y ago
      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).
      - catalogia 7y ago
        It's shameful that you've been downvoted across this thread for talking sense.
        7y ago
- tzs 7y ago
  > 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. There is an interesting case where they were lucrative for lawyers. The government wanted to discourage "short swing" trading by executives and other insiders. That's a series of trades that includes both buying and selling. The way they did this was the brilliant rule 16(b). That rule says that officers, directors, and people who own more than 10% of the shares in a company must turn over to the company any profits from short swing trading of the company's stock that occurs within a 6 month period. So if Bob the CEO buys company stock at $100/share and a month later sells it at $120/share, Bob owes the company $20/share. What makes it brilliant is: 1. If the company doesn't act and ask Bob to cough up that $20/share, and shareholder can sue Bob to make him do so, 2. If Bob loses, Bob will have to pay the attorney fees of that shareholder, 3. The shareholder did not have to be a shareholder at the time of Bob's trades. They only need to be a shareholder when they file the suit. The people that 16(b) applies to are the same set of people who are required to publicly report their trades. There were law firms that would get those public reports in machine readable form, have a program go through them looking for people who profited from short swing trades, buy one share in those companies, and then sue. They easily would win, and Bob would have to pay his profits to the company, and the lawyers got to collect their fees from Bob. And that's not even the worst of it for poor Bob. Suppose Bob had bought at $100, then sold at $90. If that's all he did, no problem because he had a loss, not a profit. But suppose that Bob then bought at $80 and sold at $70. Bob has suffered a loss of $20. No profit, so at least no 16(b) problem, right? Not so fast. Suppose all four of those transactions took place inside of 6 months. The short swing profit calculation doesn't really care about timing. It just looks for the highest sale price and lowest purchase purchase price in the window and matches as many shares up at those prices as it can. Then do the same thing for the remaining shares, and so on, until as many shares as possible have been matched up. Bob's buy $100/sell $90, buy $80/sell $70, which is a $20 loss according to Bob's bank account, would be seen as a $10 profit--the buy $80 would be matched with the sell $70. Bob ends up coughing up $10 to the company, on top of the $20 he actually lost, and whatever he has to pay the lawyers who sue him if it comes to that. This turned out to be so effective at stopping officers, directors, and 10% shareholders from making money off of these short swing trades (or even from breaking even) that they largely stopped even trying--and with no enforcement cost to the SEC. Those people, if they want to trade in their own company's stock, have to pick a direction (buy or sell) and stick with that. If they want to change direction, they need to wait more than 6 months.
- gamblor956 7y ago
  Shareholder lawsuits provide money to all those shareholders who were damaged as a result of the tortious action. In this case, that includes shortsellers, current and former shareholders who sold their shares, and current and former shareholders who may have purchased their shares on the false news and then sold them for losses when the truth was revealed. Yes, lawyers make a lot of money compared to individual shareholders. But in a class-action lawsuit, they make less overall money then they would if each shareholder had their own lawyer, and it costs the company far less to defend one shareholder class action then several thousand (and this is the entire point of class actions).
  - nickff 7y ago
    Shareholder class-action judgements do take money from the company, and give it to both the shareholders, and their lawyers. The problem is that from the point of view of a long-term shareholder, it is taking money from one pocket, and putting it in the other (after compensating the lawyers for their trouble). Short-sellers will almost certainly not be in a class of shareholders, as they only hold the stock for a very brief period before selling it, and then only for a brief period before returning it to their counter-party; if they hold it longer, they are not short-sellers. Among the shareholder class, there are a few different categories, each wins or loses a different amount due to the class-action: 1) Those who owned the stock at the time of the misrepresentation and continued to own it until the judgement/settlement. These people lose their portion of the lawyers' fees 2) Those who owned the stock at the time of the misrepresentation and sold it before the lawsuit ended. These people benefit from the judgement/settlement amount, minus lawyers' fees. 3) Those who did not own the stock a the time of the misrepresentation, but bought it before the end of the lawsuit. These people lose however much group 2 gained, in addition to some legal costs. Out of the three groups, 1 and 2 are part of the class, but only 2 benefits from a successful complaint.
- kds3 7y ago
  It's kind of dividends but without approval from majority of shareholders and bondholders. Company draws down credit line, shareholders receive cash, lawyers receive their %. Shareholders still have same amount of shares, win-win for everyone.
firasd 7y ago
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_ 7y ago
  > 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?
  - firasd 7y ago
    I guess this shows that I spend too much time on twitter but there are big conflicts on there about things he does all the time; and he is very polarizing, with legions of fans and detractors. Short sellers and left wing types are big subcultures among prominent Elon detractors.
  - CamperBob2 7y ago
    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.
slg 7y ago
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.
- elicash 7y ago
  > the people still angry about this are likely Tesla shorts and day traders. Why does this matter?
  - mehrdada 7y ago
    Because it is a shareholder lawsuit, supposedly claiming some damages to the Tesla shareholder, who happens to be doing very well. The non-shareholder community is the one at loss and would want restitution for their "damages," but Tesla, Inc. really has no responsibility towards them beyond the general rules and regulations, i.e. SEC et al complaints. TL;DR: if you bought or held TSLA due to that tweet, well, it's already above that price+market gain.
    - elicash 7y ago
      Genuinely asking, I don't understand the distinction you're making. Weren't these folks shareholders? Is the idea that if you're no longer a shareholder, this makes you bad?
      - mehrdada 7y ago
        Filing a lawsuit does not mean you will win. Yes, you can tactically become a shareholder and file suits as some people do all the time. You miss earning you get hit by a shareholder lawsuit every time. This is not a rare thing, but also does not necessarily imply they have any reasonable claim to any damages. Could be just leeching. The distinction between this and the SEC matter that was settled is that SEC is supposed to care about the integrity of the market at large, not just Tesla, Inc. shareholders doing well at the cost of other players in the market that were misled. That's a much stronger basis to argue for damages.
CivBase 7y ago
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?
- inopinatus 7y ago
  That penance is reserved for small investors. They are Frank Wilhoit’s out-group in this matter.
- soup10 7y ago
  Nobody forced Musk to run a highly leveraged company that will collapse on itself when it runs out of cheap financing. At some point the music will stop.
  - CivBase 7y ago
    And nobody forced investors to buy overpriced Tesla stocks. I'm not going to bat for Elon here. I just think it sets a pretty bad precedent for investors to be able to sue a person when they make bad investments based on that person's social media ramblings. If Elon or someone connected to him profited off the ordeal, then there might be something here. I haven't seen anything to indicate that, though.
    - soup10 7y ago
      https://en.wikipedia.org/wiki/Securities_fraud https://en.wikipedia.org/wiki/Securities_fraud
      - CivBase 7y ago
        I never said the lawsuit wont be successful. I just said I think it is a bad precedent. IANAL, so I can only offer amateur speculation regarding whether Elon's actions were illegal. His actions do not align with any of the "type of securities fraud" listed on that page, but they do fit within the broader definition given at the top of the page.
crazygringo 7y ago
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 7y ago
  $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.
  - papermachete 7y ago
    Why are people so fucking entitled?
    - H8crilA 7y ago
      You'd make an entertaining but an unsuccessful attorney. Imagine defending a robber: Why are the plantiffs so entitled to compensation for damage? Whatever happened, happened - stop dragging the subject!
      - papermachete 7y ago
        More like getting kicked out for failing your mortgage despite knowing what you're getting into.
        H8crilA 7y ago
        Dude, it was a fraud, in the most speedy "fraud segment", that is M&A. It's so speedy because M&A directly links a security against a price ($420), but it was all a lie. It really is just a robbery.
lazyjones 7y ago
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 7y ago
  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.
  - gamblor956 7y ago
    People don't seem to understand that the current share price of Tesla is largely irrelevant to this case. What matters is the harm to the shareholders (or former shareholders) at the time the 420 tweet was still relevant (i.e., back in summer 2018).
  - lazyjones 7y ago
    > 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 7y ago
      > 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".
papermachete 7y ago
$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 7y ago
  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 7y ago
    If your million/billion dollar deals are swayed by social media and jokes, you need better risk management.
    - detaro 7y ago
      "social media" == "a channel Tesla told the world to expect financially relevant disclosures in" in this case.
radium3d 7y ago
"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 7y ago
  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.
m0zg 7y ago
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.
arrty88 7y ago
They will settle for a billion or so and call it a day

71 points by Hoasi 7y ago

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.

nickff 7y ago

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 7y ago
So it’s unjust? Have you ever seen a civil lawsuit?
- nickff 7y ago
  I'm not taking a position on whether it's 'just', I am simply pointing out that it primarily benefits the lawyers, and may benefit a few former shareholders. I believe that class-action suits are supposed to benefit the class, both in the judgement/settlement and in changing long-term incentives. Shareholder lawsuits appear to do neither.
  - projektfu 7y ago
    Fair enough but screwing speculators in favor of die hard fans is not enough reason to hold off.
    - nickff 7y ago
      If this were a class-action lawsuit by people who were shorting Tesla stock, or owned some option on it, I would agree that it would be serve the purposes of class-action lawsuits (aside from lawyer-enrichment). But it isn't.
      - projektfu 7y ago
        Unfortunately for your position, it’s considered to harm all investors when a key executive mouths off like this.
        nickff 7y ago
        I definitely agree that key executives mouthing off does harm the shareholders; the problem is that these shareholder class-actions against companies do not provide a real remedy to the harmed shareholders. I also agree that courts are allowing these lawsuits to proceed despite hearing objections like mine.
- thaumasiotes 7y ago
  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.
  - boznz 7y ago
    Buy $100 in shares, and also short it by $100M and I am sure you will come out of this just fine I'm guessing
  - gamblor956 7y ago
    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).
    - catalogia 7y ago
      It's shameful that you've been downvoted across this thread for talking sense.
      - 7y ago
tzs 7y ago
> 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. There is an interesting case where they were lucrative for lawyers. The government wanted to discourage "short swing" trading by executives and other insiders. That's a series of trades that includes both buying and selling. The way they did this was the brilliant rule 16(b). That rule says that officers, directors, and people who own more than 10% of the shares in a company must turn over to the company any profits from short swing trading of the company's stock that occurs within a 6 month period. So if Bob the CEO buys company stock at $100/share and a month later sells it at $120/share, Bob owes the company $20/share. What makes it brilliant is: 1. If the company doesn't act and ask Bob to cough up that $20/share, and shareholder can sue Bob to make him do so, 2. If Bob loses, Bob will have to pay the attorney fees of that shareholder, 3. The shareholder did not have to be a shareholder at the time of Bob's trades. They only need to be a shareholder when they file the suit. The people that 16(b) applies to are the same set of people who are required to publicly report their trades. There were law firms that would get those public reports in machine readable form, have a program go through them looking for people who profited from short swing trades, buy one share in those companies, and then sue. They easily would win, and Bob would have to pay his profits to the company, and the lawyers got to collect their fees from Bob. And that's not even the worst of it for poor Bob. Suppose Bob had bought at $100, then sold at $90. If that's all he did, no problem because he had a loss, not a profit. But suppose that Bob then bought at $80 and sold at $70. Bob has suffered a loss of $20. No profit, so at least no 16(b) problem, right? Not so fast. Suppose all four of those transactions took place inside of 6 months. The short swing profit calculation doesn't really care about timing. It just looks for the highest sale price and lowest purchase purchase price in the window and matches as many shares up at those prices as it can. Then do the same thing for the remaining shares, and so on, until as many shares as possible have been matched up. Bob's buy $100/sell $90, buy $80/sell $70, which is a $20 loss according to Bob's bank account, would be seen as a $10 profit--the buy $80 would be matched with the sell $70. Bob ends up coughing up $10 to the company, on top of the $20 he actually lost, and whatever he has to pay the lawyers who sue him if it comes to that. This turned out to be so effective at stopping officers, directors, and 10% shareholders from making money off of these short swing trades (or even from breaking even) that they largely stopped even trying--and with no enforcement cost to the SEC. Those people, if they want to trade in their own company's stock, have to pick a direction (buy or sell) and stick with that. If they want to change direction, they need to wait more than 6 months.
gamblor956 7y ago
Shareholder lawsuits provide money to all those shareholders who were damaged as a result of the tortious action. In this case, that includes shortsellers, current and former shareholders who sold their shares, and current and former shareholders who may have purchased their shares on the false news and then sold them for losses when the truth was revealed. Yes, lawyers make a lot of money compared to individual shareholders. But in a class-action lawsuit, they make less overall money then they would if each shareholder had their own lawyer, and it costs the company far less to defend one shareholder class action then several thousand (and this is the entire point of class actions).
- nickff 7y ago
  Shareholder class-action judgements do take money from the company, and give it to both the shareholders, and their lawyers. The problem is that from the point of view of a long-term shareholder, it is taking money from one pocket, and putting it in the other (after compensating the lawyers for their trouble). Short-sellers will almost certainly not be in a class of shareholders, as they only hold the stock for a very brief period before selling it, and then only for a brief period before returning it to their counter-party; if they hold it longer, they are not short-sellers. Among the shareholder class, there are a few different categories, each wins or loses a different amount due to the class-action: 1) Those who owned the stock at the time of the misrepresentation and continued to own it until the judgement/settlement. These people lose their portion of the lawyers' fees 2) Those who owned the stock at the time of the misrepresentation and sold it before the lawsuit ended. These people benefit from the judgement/settlement amount, minus lawyers' fees. 3) Those who did not own the stock a the time of the misrepresentation, but bought it before the end of the lawsuit. These people lose however much group 2 gained, in addition to some legal costs. Out of the three groups, 1 and 2 are part of the class, but only 2 benefits from a successful complaint.
kds3 7y ago
It's kind of dividends but without approval from majority of shareholders and bondholders. Company draws down credit line, shareholders receive cash, lawyers receive their %. Shareholders still have same amount of shares, win-win for everyone.

firasd 7y ago

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_ 7y ago
> 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?
- firasd 7y ago
  I guess this shows that I spend too much time on twitter but there are big conflicts on there about things he does all the time; and he is very polarizing, with legions of fans and detractors. Short sellers and left wing types are big subcultures among prominent Elon detractors.
- CamperBob2 7y ago
  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.

slg 7y ago

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.

elicash 7y ago
> the people still angry about this are likely Tesla shorts and day traders. Why does this matter?
- mehrdada 7y ago
  Because it is a shareholder lawsuit, supposedly claiming some damages to the Tesla shareholder, who happens to be doing very well. The non-shareholder community is the one at loss and would want restitution for their "damages," but Tesla, Inc. really has no responsibility towards them beyond the general rules and regulations, i.e. SEC et al complaints. TL;DR: if you bought or held TSLA due to that tweet, well, it's already above that price+market gain.
  - elicash 7y ago
    Genuinely asking, I don't understand the distinction you're making. Weren't these folks shareholders? Is the idea that if you're no longer a shareholder, this makes you bad?
    - mehrdada 7y ago
      Filing a lawsuit does not mean you will win. Yes, you can tactically become a shareholder and file suits as some people do all the time. You miss earning you get hit by a shareholder lawsuit every time. This is not a rare thing, but also does not necessarily imply they have any reasonable claim to any damages. Could be just leeching. The distinction between this and the SEC matter that was settled is that SEC is supposed to care about the integrity of the market at large, not just Tesla, Inc. shareholders doing well at the cost of other players in the market that were misled. That's a much stronger basis to argue for damages.

CivBase 7y ago

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?

inopinatus 7y ago
That penance is reserved for small investors. They are Frank Wilhoit’s out-group in this matter.
soup10 7y ago
Nobody forced Musk to run a highly leveraged company that will collapse on itself when it runs out of cheap financing. At some point the music will stop.
- CivBase 7y ago
  And nobody forced investors to buy overpriced Tesla stocks. I'm not going to bat for Elon here. I just think it sets a pretty bad precedent for investors to be able to sue a person when they make bad investments based on that person's social media ramblings. If Elon or someone connected to him profited off the ordeal, then there might be something here. I haven't seen anything to indicate that, though.
  - soup10 7y ago
    https://en.wikipedia.org/wiki/Securities_fraud https://en.wikipedia.org/wiki/Securities_fraud
    - CivBase 7y ago
      I never said the lawsuit wont be successful. I just said I think it is a bad precedent. IANAL, so I can only offer amateur speculation regarding whether Elon's actions were illegal. His actions do not align with any of the "type of securities fraud" listed on that page, but they do fit within the broader definition given at the top of the page.

crazygringo 7y ago

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 7y ago
$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.
- papermachete 7y ago
  Why are people so fucking entitled?
  - H8crilA 7y ago
    You'd make an entertaining but an unsuccessful attorney. Imagine defending a robber: Why are the plantiffs so entitled to compensation for damage? Whatever happened, happened - stop dragging the subject!
    - papermachete 7y ago
      More like getting kicked out for failing your mortgage despite knowing what you're getting into.
      - H8crilA 7y ago
        Dude, it was a fraud, in the most speedy "fraud segment", that is M&A. It's so speedy because M&A directly links a security against a price ($420), but it was all a lie. It really is just a robbery.

lazyjones 7y ago

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 7y ago
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.
- gamblor956 7y ago
  People don't seem to understand that the current share price of Tesla is largely irrelevant to this case. What matters is the harm to the shareholders (or former shareholders) at the time the 420 tweet was still relevant (i.e., back in summer 2018).
- lazyjones 7y ago
  > 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 7y ago
    > 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".

papermachete 7y ago

$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 7y ago
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 7y ago
  If your million/billion dollar deals are swayed by social media and jokes, you need better risk management.
  - detaro 7y ago
    "social media" == "a channel Tesla told the world to expect financially relevant disclosures in" in this case.

radium3d 7y ago

"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 7y ago
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.

m0zg 7y ago

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.

arrty88 7y ago

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