Tesla Faces U.S. Criminal Probe Over Musk Statements • Hacker News Board

Re: Tesla Faces U.S. Criminal Probe Over Musk Statements

#351

Post by AnthonyMouse » Tue, Sep 18, 2018, 9:15 PM UTC

NickM wrote: post #346

AnthonyMouse wrote: post #343

Earlier quoted context omitted.

It's because you're answering the wrong question. It isn't how short sellers overtly try to lower the stock price, it's how they inherently lower it just by shorting the stock. The answer is that a short sale is borrowing a share and then selling it, which increases the number of shares available for sale and by supply and demand reduces the price (until the short seller eventually buys back the stock to return it to…

Your answer is correct too, but the question originally asked was "what would he have gained from destroying the shorts? I understand that shorts are effectively a bet that the stock will go down but do they actually damage the company in any way?" The answer is yes, short sellers do damage the company for a variety of reasons, some reasons relating directly to stuff like stock price, and other reasons being more ind…

I guess we're just interpreting the question differently.

Re: Tesla Faces U.S. Criminal Probe Over Musk Statements

#352

Post by abalone » Tue, Sep 18, 2018, 9:15 PM UTC

gamblor956 wrote: post #311

abalone wrote: post #263

Earlier quoted context omitted.

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.

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 Tesl…

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.

Re: Tesla Faces U.S. Criminal Probe Over Musk Statements

#353

Post by abalone » Tue, Sep 18, 2018, 9:20 PM UTC

SilasX wrote: post #267

abalone wrote: post #131

Earlier quoted context omitted.

> He clearly wanted to pump up the stock price and screw short sellers (he threw lots of indicators in the public space), and his statement was clearly and knowingly false. There was no secured funding. No this is not textbook at all. See previous citation from the SEC re: intentionality as a key element in criminal fraud. "Clearly and knowingly false" is just a serious-sounding way to say a misstatement. Did Musk no…

>Did Musk not actually believe in his heart So you're saying that, the way securities law works, personal optimism is all it takes to justify any representation of any upcoming financing terms? There's no requirement beyond what's in his heart?

I'm saying the idea of just making a misstatement doesn’t necessarily rise to the level of fraud. You have to do something with intentionality.

Oops, I mean I didn't say that. The head of the San Francisco SEC office did.

Re: Tesla Faces U.S. Criminal Probe Over Musk Statements

#354

Post by SilasX » Tue, Sep 18, 2018, 9:21 PM UTC

aeriklawson wrote: post #239

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.

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.

Re: Tesla Faces U.S. Criminal Probe Over Musk Statements

#355

Post by dyu » Tue, Sep 18, 2018, 9:26 PM UTC

danso wrote: post #49

Asparagirl wrote: post #38

Earlier quoted context omitted.

It’s important to note that Elon screwed over the “longs” (people holding TSLA stock) too, not just the shorts. Many people and funds bought more TSLA stock in the $350’s range on the assumption that of course the company could/would go private at $420/share. After all, hadn’t the CEO just said so?

I was reading r/TeslaMotors that day and a long made the astute observation that shorting the stock after Musk's announcement when it hit around $380 was the most logical thing to do, because at most you'd be out 10% if Musk were telling the truth. If I had a trading account I think I might have gone for that.

You can do a straddle and get the best of both sides.

Re: Tesla Faces U.S. Criminal Probe Over Musk Statements

#356

Post by SilasX » Tue, Sep 18, 2018, 9:27 PM UTC

abalone wrote: post #353

SilasX wrote: post #267

Earlier quoted context omitted.

>Did Musk not actually believe in his heart So you're saying that, the way securities law works, personal optimism is all it takes to justify any representation of any upcoming financing terms? There's no requirement beyond what's in his heart?

I'm saying the idea of just making a misstatement doesn’t necessarily rise to the level of fraud. You have to do something with intentionality. Oops, I mean I didn't say that. The head of the San Francisco SEC office did.

Yes, but proving intent is the easy part of this, what with Musk's propensity to trash-talk short-sellers.

Re: Tesla Faces U.S. Criminal Probe Over Musk Statements

#357

Post by espeed » Tue, Sep 18, 2018, 9:38 PM UTC

harryh wrote: post #9

beaconstudios wrote: post #6

Earlier quoted context omitted.

> But he lied on twitter in a direct effort to cause financial harm to people shorting Tesla stock. Do you have evidence of this, or is it speculation?

The "lied on twitter" part is now clear. He said he had funding secured for a buyout at $420 which he has now basically admitted was not true. The "cause financial harm to people shorting Tesla stock" is a bit of speculation but it seems basically obvious to all observers.

He said he had funding secured for a buyout at $420

420...was is really $420? And then smoking weed on Joe Rogan? LOL, now that's funny ;-)

Re: Tesla Faces U.S. Criminal Probe Over Musk Statements

#358

Post by zwerdlds » Tue, Sep 18, 2018, 9:48 PM UTC

tomatocracy wrote: post #312

zwerdlds wrote: post #22

Earlier quoted context omitted.

Shorts drive the price down, making it more expensive for the company to borrow from the market by selling stock. They have to sell more shares to receive a similar amount.

It doesn't make it "more expensive" for the Company (as opposed to its existing shareholders) raising equity capital unless the stock pays a dividend and the only way they can sell more stock is to promise buyers they won't reduce the dividend per share to compensate for the increased number of shares in issue. Tesla doesn't pay a dividend, so that isn't the case here. In extremis, a falling/low price could limit the…

Key point: I was trying to explain this to someone who had no idea of what a short is. I didn't want to muddy the issue with complex descriptions of equity, dividends etc.

But if you think of equity as having a value other than derived from the market, then 'expensive' might still have applicability here.

It's been a long time since I've used this though.

Re: Tesla Faces U.S. Criminal Probe Over Musk Statements

#359

Post by RussianCow » Tue, Sep 18, 2018, 9:54 PM UTC

mandeepj wrote: post #251

danso wrote: post #49

Earlier quoted context omitted.

I was reading r/TeslaMotors that day and a long made the astute observation that shorting the stock after Musk's announcement when it hit around $380 was the most logical thing to do, because at most you'd be out 10% if Musk were telling the truth. If I had a trading account I think I might have gone for that.

> If I had a trading account I think I might have gone for that. It does not take that long to open a trading account or you could have taken one of your friends help to execute this trade

Funding an account usually takes a few business days unless you use a wire transfer, which has a cost. By the time you open and fund the account, it may be too late to execute the trade.

Re: Tesla Faces U.S. Criminal Probe Over Musk Statements

#360

Post by defen » Tue, Sep 18, 2018, 9:58 PM UTC

MichaelApproved wrote: post #106

defen wrote: post #98

Earlier quoted context omitted.

Sell short and buy a corresponding (shares short / 100) number of call options at $420 strike (which, in theory, if Musk were telling the truth, should essentially be worthless but in practice will come with some amount of premium). That way you have a guaranteed exit at $420/share + option premium paid. You could reduce your option premium cost while slightly increasing your max loss if you went with $430 calls or w…

Why not just buy puts and simplify the trade?

That could work too; without seeing the numbers it's hard to say. For example you might have a higher chance of losing your money due to theta decay depending on how far out you're buying. And the premium on the puts is going to be substantially higher than on the defensive calls unless you go significantly OTM.