Tesla Faces Criminal Probe Over Whether It Misstated Production Figures
wsj.com
wsj.com
"Is it possible that Hillary is the anti-Christ?"
"We're not saying she is, but we're just asking the question, is it possible?"
I can definitely see how Musk's "funding secured" tweet crossed the line into potentially criminal behavior, but honestly, I have a hard time seeing how overly optimistic projections can be criminal if there is even an iota of a possibility that they could be met, no matter how unlikely.
"We're going to sell 800 million Windows 10 licenses this quarter" would be a projection. People might buy MS stock based on something like this. Publicly traded companies routinely provide earnings guidance based on production/sales forecasts. And earnings guidance absolutely has an impact on share price. So if a company is knowingly providing unlikely guidance figures, they're also knowingly misleading the market.
I'm just speaking generally here. I don't know enough about the Tesla case to comment one way or another.
"Best ever" is a subjective statement, and most people would not take it as a neutral statement of carefully researched fact. Official corporate financial projections, on the other hand, are taken very seriously. People expect they might be wrong, but not that they might be fraudulent or negligent with regards to the truth.
Now, what if they had been 'optimistic'? Well, they might have said "yeah we're going to keep hitting growth targets!" And the stock would have done very well today. All those employees holding stock would have seen a nice boost to their bottom line.
But it is the responsibility of a publicly traded company to provide such accurate forecasts to the best level they can so that the stockholders- members of the public like you and me- can make decisions based on facts, not hopeful opinions. Amazon had to tell the truth even when it personally cost everyone in the company some net worth.
This is just one cost/responsibility that comes with being publicly traded.
That would be considered puffery: https://en.wikipedia.org/wiki/Puffery
This is a public company, not an Avengers movie trailer.
They can't just conjure arbitrarily positive numbers out of thin air.
Their statements to investors and potential-investors must be fact based and made in good faith.
Otherwise, what's wrong with Musk's tweet?
I'm sure there was "an iota of a possibility" that someone crazy enough would buy Tesla at $420.
There's "an iota of a possibility" for a lot of far-fetched scenarios, but public companies must be truthful and reasonable in their statements made to the investing public - especially when they err on the side of optimism.
With public company all you have to do is conplain to SEC in hopes to i.e. remove CEO from his duties and get going with someone else in charge.
Clearly there is huge advantage of getting access to hundreds of millions of dolars in capital to spend, but that’s usually where advantages ends.
If he said "I'm planning to take Tesla private" that would have been fine, even if the likelihood of Tesla going private was very remote.
That's how I read it anyway.
> Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.
I'm convinced that he lied to hurt the short sellers.
Luckily, it'll be for a court to decide if it even goes that far.
Musk was offered a settlement, he refused at the 11th hour, the SEC threatened to sue for everything, then he settled for a higher amount than the initial offer.
What remains is convincing a judge that the settlement is just.
"Judge approves Elon Musk's settlement with SEC" (Published 9:36 AM ET Tue, 16 Oct 2018 Updated 3:29 PM ET Tue, 16 Oct 2018)
https://www.cnbc.com/2018/10/16/judge-approves-elon-musks-se...
The malarkey is over then.
The SEC is not exactly at the forefront of enforcement though, despite its title. The Madoff Ponzi scheme was discovered by Harry Markopolos, who reported it to the SEC, and the SEC sat on it for many years before any action was taken.
It goes without saying that stating a production capacity of 20k/month and barely making 10% of that, is more likely to be a material misstatement.
Second, public equity markets are a heavily regulated environment, for many reasons, and require strict rules to function to avoid widespread fraud, market manipulation, insider trading, etc.
This is similar to Healthcare as well. You can't just go selling a random untested drug claiming that it cures cancer.
And they should be different because of different configurations of power and impact. Investing isn't just buying a product or a service, it is allowing someone to use your money freely within certain conditions.
It isn't just because you can create an analogy between two things that they are the same.
I don't know if he's keeping this tendency to keep people interested, or just never adjusted to something closer to reality.
This statement is ridiculous and has zero basis in fact.
If the majority of executives around the world were lying on a constant basis businesses would never be able to function. Companies would be constantly under threat of law suit or government investigation and they would never stand up to independent audits. The board would be untenable and internally it would be pure chaos.
Also marketing claims that companies make are often very much real they just don't apply broadly and you should ignore them accordingly.
Yes, but that is far cry from funding secured. Which company doesn't try to convey the image that they are the best thing the world has ever had the fortune of experiencing?
I'm reminded of the Itanium Sales Forecast graph: https://commons.wikimedia.org/wiki/File:Itanium_Sales_Foreca...
Their critics can't just make up criticisms that make no sense. They stated clearly that the number and rate of improvement could shift to the right and the long-term material impact to their business would be negligible.
They were right.
That would make all sorts of pump & dump scams perfectly fine and they aren't.
I’m not a lawyer, but I think even just optimistic projections should be avoided at all costs in earnings forecasts. They may be fine, if accompanied with a zillion “if all stars align” phrases, but it’s a minefield best avoided.
https://corpgov.law.harvard.edu/2012/11/08/giving-good-guida... (near the end, after a zillion warnings to be careful):
”Viewed with hindsight, overly optimistic guidance can result in financial cost to the company and its directors and officers.”
Tesla has a lawyer, probably several, that know exactly how far company officers can go regarding making public projections. They can't do much if the CEO loves headlines and says whatever it takes to stay in them.
there are degrees of security, everything from "This bank account is secured by FDIC insurance" to "This touchdown secured his Heisman bid" to "You are secured to this lava helicopter by a piece of yarn"
While it's not enforced that tightly by the SEC, it's common knowledge in banking that, for instance in the process of an IPO (or in the offering of any security to the public, i.e. quarterly reports), you should always show pessimism in your outlook. Take Snap's S-1 [1], for an example-- I linked to the Risk Factors section, and you can see a huge amount of bullet points of everything that could possibly go wrong for Snap, even going into how Google could raise prices on cloud storage and screw them over.
While, again, I totally agree with you it isn't criminal, Tesla could be in trouble if they gave very idealistic estimates.
[1] https://www.sec.gov/Archives/edgar/data/1564408/000119312517...
See, for example, https://www.theguardian.com/environment/climate-consensus-97...
This article is highly questionable given their history.
Given that, the SEC is less likely to give leeway for further over-optimistic tweets.
Mods: could you update link?
Seems like very sloppy reporting at the WSJ especially when information like this can move markets.
> (Reuters) - Tesla Inc (TSLA.O) said on Friday it had not received a subpoena from the U.S. Department of Justice regarding production guidance for its Model 3 sedans, in response to a Wall Street Journal story that said the electric carmaker was facing a deeper criminal probe.[4]
>The FBI is reportedly looking into whether Musk or the company made projections which they knew they couldn’t meet. [2]
This is wild! This makes 0 sense because Musk admitted a few months ago that he was wrong about automation at the factories. If that is the case, Musk really did believe he could produce those numbers.
How is it possible to try someone of misstating something that was "impossible", when they constantly do the "impossible."
This is what he said a few months ago on CBS This Morning on April 12, 2018:
"“Excessive automation at Tesla was a mistake,” Musk wrote, responding to a Wall Street Journal reporter’s tweet. “Humans are underrated.” He also talked about this with CBS News’ Gayle King, adding “we had this crazy, complex network of conveyor belts….And it was not working, so we got rid of that whole thing.”"[3]
For those that cannot read the WSJ article, this is what I think are the important statements that the WSJ stated:
> A few months later in July, Mr. Musk sounded confident that Tesla would be producing 20,000 Model 3s a month in December 2017, in line with his previous pledge of having 5,000 vehicles a week by year’s end. “Looks like we can reach 20,000 Model 3 cars per month in Dec,” he tweeted on July 2, 2017, days before the first Model 3 rolled off the production line.[1]
> In the early weeks of production, the company’s body shop, where the skeleton of the cars would take shape, wasn’t fully functional, according to an October 2017 article in The Wall Street Journal. Tesla was still hand-building parts of the Model 3s, and the body shop wasn’t fully installed until September, according to people quoted in the article that were familiar with the situation. [1]
> Now the FBI is comparing the company’s statements with its production capability during 2017. [1]
[1] (https://www.wsj.com/articles/tesla-faces-deepening-criminal-...)
[2] (https://www.zerohedge.com/news/2018-10-26/fbi-investigating-...)
[3] (https://techcrunch.com/2018/04/13/elon-musk-says-humans-are-...)
[4] (https://www.reuters.com/article/us-tesla-probe/tesla-says-it...)
Does that not imply that the "Justice Department is focusing on Tesla’s Model 3 production issues."
Why else would Tesla release a statement?
By analogy:
Things at Tesla happen in 'Elon time' and most fans of the brand are happy with that. For them it is like having a baby, with hopes that the baby will grow up to be a child reading '5000 words a month' before their first year of school, in a school that isn't fully built yet. They know that there can be problems 'building the school', 'sourcing books' and what-not and are okay with that. So long as they can see progress they are happy. After all the school has done an excellent job of 'educating older kids' albeit a smaller number of them.
Yet others who sent their kids to schools that follow a more orthodox curriculum come along wanting to do-down this rival school. They find what hasn't been done and latch on to 'the lack of progress on the main hall'. They ignore the 'well stocked library' and 'completed classrooms' and go running off to the authorities. How can the kids sit their exams with no assembly hall, they ask? And no, a 'hastily elected tent' won't do.
The authorities who aren't directly in the teaching game have to take on board the nay-sayers complaints. The opinions of the parents don't matter to them, they are listening to these outsiders wanting to do everything down. They don't know if these are technicalities or whether the parents were tricked into something that was never going to happen. So it all gets serious.
Tesla on the other hand has been public for a while and actually makes working cars. They are however strapped for cash and the CEO may have made material misstatements about production capability in order to borrow more money.
Theranos' fraud seemed to be driven by simple greed. I don't think Musk is a fraudster, but his ego and immaturity is starting to overshadow what he's trying to accomplish.
Edit : I'm not sure about why I'm downvoted. This article behind a paywall doesn't provide much more information than a freely accessible new agency. You would expect more information than just "X didn't respond to a request for comment". I'm denouncing the paywall here.
Yet the html alone of this page ist over 1 megabyte.
The meta tags make up 7200 bytes. 20 times more metatags then content.
False statements like "I've secured funding to take Tesla private", for example...
"I never want to you look like you."
"Don't worry, you never will."
You're never forced to go public, but you will be required to disclose financial data to the public if you have more than 1,999 individual shareholders and assets with a value that is greater than or equal to 10 million dollars.
You may also some day want employees, and it seems unlikely you will be able to compete in compensation on the private side.
That's why. Filing 424: secondary offerings to the public market.
https://www.sec.gov/Archives/edgar/data/1318605/000119312516...
There's $2,000,000,000 right there raised through the public market.
https://www.sec.gov/Archives/edgar/data/1318605/000119312516...
There's 300-million or so.
https://www.sec.gov/Archives/edgar/data/1318605/000119312514...
There's another $2,000,000,000 raised.
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Companies go public to raise money. Elon Musk wanted to spend $5 Billion on a Gigafactory. How else was he going to get the money?
You kick over a hornets nest, you better have a lot of raid on hand.
That said, the NYT has been consistently brutal to Tesla and SpaceX. Part of it is that they leave themselves open. They are being candidly honest and aggressive, and don't always make their goals..
But they shoot for the moon. If they miss, at least they make orbit, as opposed to plummeting back down to the ground.
Also just because they're innovative and are solving climate change doesn't mean we all just have to look away all the time.
(HN has no sense of humor. It's a comment about his extreme optimism and success against what others think impossible.)
And nobody is attacking Tesla for the sake of it. They are doing it because his behaviour is sometimes abhorrent, childish, unethical and it often encourages others to do the same. And just like with Theranos entrepreneurs should be doubly critical of others who drag us all down.
So, Elon Musk is the tech-Jesus? He died on the SEC to take us to Mars?
Musk is not the lynchpin to getting to the future. His antics are actively hurting his ability to deliver EVs, including wasting company resources on avoidable legal troubles because he’s mad at short sellers.
Killing yourself for your company is not admirable.
and make insane amounts of money. Which is perfectly fine in my book, but lets get off this hero worship. Giving people a pass on acting poorly because of who they are is never okay.
This most recent hullabaloo may prove to be nothing -- companies overestimate projections all the time -- but if they wildly overestimated projections in a way they knew was misleading, that's an issue. "People have been telling Elon his dreams are crazy forever" is true, but it's not necessarily a solid defense.
> Why are people so hellbent on attacking this wonderful innovative company?
To me, the simple answer is that there's basically a Newton's Third Law for PR. Imagine Musk had done PR in the style of GM or Ford. That any public pronouncements were quiet and modest. That results mainly spoke for themselves. Had he done that, I don't think he'd have picked up nearly as many critics.
But Musk has hyped Tesla to the heavens, creating an army of dedicated believers. This has given him great access to cheap capital, and an incredible amount of free media attention. But it also means that there are plenty of reasonable people who think that Tesla is not all that, and are tired of hearing about it.
That also explains the shorts. GM's short position is 1/10th of Tesla's. For every dollar Musk's PR efforts push up Tesla's stock price, that's a dollar that could be made by somebody who thinks Musk is overoptimistic.
If the people who are doing it tell him it's impossible and he reports that it is support to his shareholders that could very well be a crime because it may not be realistic. Misleading shareholders is a big deal.
> Why are people so hellbent on attacking this wonderful innovative company?
Possibly breaking the law has consequences and it needs to be investigated? I don't understand why so many in tech simply give Musk a pass just because he's done some really cool stuff.
Let's not make a mockery out of our selves to come to someone's defense who may or may not deserve it. Wait and see what happens.
Why are people so hellbent on defending this company no matter how many idiotic things they (Musk mostly) do? Almost 100% of these problems are caused by Musk himself.
> Federal Bureau of Investigation agents are examining whether Tesla misstated information...
FBI agents look into a LOT of stuff. That's literally their job. Frankly, I'm not going to think one-way or the other unless the FBI comes up with an official statement.
I think investors might need to be worried: you know, buy the rumor sell the news sorta thing. Investors / speculators are super interested in trying to predict the future, even with unreliable information like this one.
But for the typical person, we shouldn't make an opinion of the matter until the FBI at least brings forth a case.