No single Tweet in the history of the Twittersphere has been as potentially catastrophic as Elon Musk’s August 7th stunner, which read “Am considering taking Tesla private at $420. Funding secured”. Now, it’s been reported that those 9 words (and numbers) were the impetus for a criminal probe by the Department of Justice into whether Musk had committed fraud, considering that, if his claims were not substantiated, it could have been a move to artificially drive the Tesla stock price up.
In fact, that’s precisely what happened in the wake of his Tweet. Tesla shares rose 11% on the day, fueling the speculation that a much-needed boost for shareholders was the end goal of the Tweet. But along with the fraud angle, there was immediate speculation that Musk had improperly shared information about Tesla’s financial future in a way that was exclusive to those investors more likely to look to his Twitter feed for such inside information as an advantage. If this was determined to be the case, it would be in violation of the Regulation Fair Disclosure (FD or Reg FD) doctrine.
‘Regulation Fair Disclosure, or FD, requires companies “to distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively.”’ (MarketWatch)
If it was determined that Twitter was not a reasonable means of disseminating information to all investors – as a press release would be – this could trigger an inquiry by the Securities and Exchange Commission. And it did…more on that later. But, according to the most recent reports, it is fraud, not a violation of Reg FD, that lies at the heart of the DOJ probe into Musk and Tesla. After all, Musk did reverse course on August 24th, stating seemingly out of the blue that Tesla had determined remaining a publicly-traded company was the best course of action – not that many took his claims of privatization all that seriously in the first place.
The genuineness of Musk’s claims that he was ever seriously considering taking Tesla private, and more materially whether he actually had funding in place, is at the center of the probe.
‘A federal rule prohibits [executives of publicly traded companies] from announcing plans to buy or sell securities if they don’t intend to follow-through, don’t have the means to complete the deal or are trying to manipulate the stock price. Another rule bars them from making “any untrue statement of a material fact.”’ (NBC News)
In the wake of Tuesday’s revelation of a criminal probe into the company, Tesla issued a statement acknowledging that it had been contacted by the DOJ, but painted the picture in decidedly rosier terms than most would.
“Last month, following Elon’s announcement that he was considering taking the company private, Tesla received a voluntary request for documents from the DOJ and has been cooperative in responding to it,” the statement reads. “We have not received a subpoena, a request for testimony, or any other formal process. We respect the DOJ’s desire to get information about this and believe that the matter should be quickly resolved as they review the information they have received.” (Forbes)
Perhaps there is room for optimism that this probe will simply go away. After all, a subpoena that was reportedly served by the SEC on August 15th in connection with the same August 7th “going private” Tweet has apparently been dropped. But, stockholders are neither as confident nor as willing to continue gambling on the celebrity-CEO who has taken to Tweeting impulsively (and potentially criminally), taking tokes on Top-5 podcasts, claiming that humanity is trapped in a Matrix-like existence controlled by a more powerful civilization, calling a diver who participated in the Thailand soccer team rescue a “pedo”, has been accused of Tweeting while on acid, and generally seems to act erratically more often than not.
It turns out those traits aren’t conducive to a rising stock price, though the effect, still, seems far from devastating.
‘Tesla shares on Tuesday closed 3.4% off at $284.96. The shares had been rangebound in recent sessions, and are off 8% this year. That contrasts with gains of 9% and 6% for the S&P 500 index SPX, +0.54% and the Dow Jones Industrial Average DJIA, +0.71%.’ (MarketWatch)
It still appears that there is little, whether it is exploding batteries, an allegedly lethal autopilot mode, six-month repair times, or the exposure of a criminal investigation, which can completely sink Tesla. Somehow, the cult of Musk’s personality remains strong, despite all of the speculation and certain doubt swirling around him and his company.
Whether the investigation amounts to anything remains to be seen. But, at this point, Musk’s believers and detractors have been firmly polarized. Perhaps he is a genius, perhaps he’s mostly bluster yet an expert showman. One thing remains certain: Elon Musk is the most perplexing, polarizing CEO of our modern time, straddling criminal probes and a reputation as an eccentric genius with an enigmatic mix of deft and clumsiness which the world has not seen in quite some time.
