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Comment by hn_throwaway_99 | Hacker News Reader

I think the title of the article slightly overstates what is being reported. "Misstated Production Figures" makes it sound as if Tesla lied about what it had produced, as opposed to just giving unrealistically rosy projections.

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.

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> 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.

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.

Reasons not to take your company public.

Well, misleading statements to your shareholders can still result in lawsuits. Lawsuits over this stuff regularly happen even within closely-help family companies. If you really want freedom to make up numbers the only thing to do is not have shareholders. Keep the company all within a single individual. But at that point why even bother making official projections.

You make it sound like Tesla's hypothetical private investors wouldn't have legal recourse if the CEO missed his production target by 96%.

The probably wouldn’t bother going into many years of legal battle knowing they are cutting the branch of three they sitting on.

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.

Tesla has, by and large, benefited tremendously from the funding and support it has received as a public company.

Reasons for an _honest_ person not to take their company public. Doesn't seem to have stopped Elon Musk.

Musk's tweet would have been totally OK if it didn't include the words "funding secured". That is a past-tense statement that was clearly false.

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.

“Funding secured” made it much worse, but it wasn’t fine without it. Tesla told the SEC that Musk’s tweets are company communication (http://ir.tesla.com/static-files/6496fc94-630f-41c7-96c6-94d...: ”For additional information, please follow Elon Musk’s and Tesla’s Twitter accounts: twitter.com/elonmusk and twitter.com/TeslaMotors”). That puts them in a different league.

It's not clear to me that they'd be irrelevant if not explicitly specified as company communication in a shareholder letter. In any case, the past-tense "funding secured" is precisely what makes the statement lose the protection of speculative forward-looking statements.

https://en.wikipedia.org/wiki/Forward-looking_statement

It may be a regional thing but it's pretty normal in my experience to see a solution to a problem be put out there with the following statement be a statement of confidence in the past tense. For example: "We have to increase our bandwidth. Problem solved."

That's how I read it anyway.

This completely misses the mark that "I'm planning to take Tesla private" is in fact a factual statement as there is possibility inherently built into the statement. Of course it is ok to say facts. On the other hand, if he would have said "I'm taking Tesla private", we once again get into murky waters.

His subsequent tweet removes any doubt about what he meant:

> 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.

> 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 and Tesla already settled with the SEC over this event a few weeks ago.

Thanks! I thought this was some other sort of malarkey besides that event.

There was tons of Malarkey, but it’s mostly over.

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.

> 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...

Ah, missed that.

The malarkey is over then.

It depends on whether Musk stays within the terms of the settlement, and whether the SEC has the courage to pursue any breaches.

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.

The SEC imposes civil fines. The DOJ, as far as I know, hasn't announced the results of their probe into Musk's tweet.

I know, and I totally agree with you. Just my point being the things that were potentially criminal were the false statements of fact (e.g. "investor support is confirmed"), not his opinion-based forward-looking statements.

As an IT person, my observation is public companies make similar claims when it comes to IT projects. Claims like we are going to use IBM Watson to improve our call resolution speed by 80%. Only for the project to fail after millions spent with no consequences. Many ERP projects are late and cost twice the budgeted amount. The point I am trying to make is executives always exaggerate.

It would be an issue if the cost of the project had a material impact on the company's finances. Usually the auditors work with the CFO to determine materiality.

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.

IT and Finance are completely different fields with very different rules. One can't simply apply one's understanding of one field to the other (which, sadly, seems to be the rule on HN).

I am genuinely interested, would you mind explaining why the rules are different? Should they be different?

The first reason why rules are different is because in one case (IT) you're dealing with a seller-customer relationship, and in the second (Finance) you're dealing with a investor-company relationship.

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.

I agree when IT is viewed as seller-customer. However, in many corporations whose primary business is not IT, IT is the enabler. In the same way, a mining company will invest in big earth moving machines, knowledge companies such as insurance companies and even retail companies build or buy IT solutions to gain efficiencies in their business. The IT system does, in fact, have an impact on the profitability of the company.

Sure, but it is just a product or service being provided, which is different from an investment mechanism.

It isn't just because you can create an analogy between two things that they are the same.

That's how I interpret Musk's statements. They've got the same "aspirational" feature as software projects. Completely unrealistic goals outside of some everything-is-easy-and-works-the-first-time utopia that doesn't exist.

I don't know if he's keeping this tendency to keep people interested, or just never adjusted to something closer to reality.

> The point I am trying to make is executives always exaggerate

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.

This is literally the reason Dilbert exists. The pointy-haired boss. Might be a parody but there is definitely some truth in it.

A comic is not evidence of systemic executive lying. It's a comic.

I'm sure there was "an iota of a possibility" that someone crazy enough would buy Tesla at $420.

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...

Right, the claim was that he should be allowed to make any statement as long as there's "an iota of possibility" that it is or will be true. That's obviously not the case.

Elon's using optimistic projections all the time to motivate the company and all other companies working with Tesla as well. The problem is that - as with any project - if the stated goals would be less, the real outcome would decrease as well. Of course weather it's legal to be optimistic or not is an orthogonal question, but it makes sense in leading a business.

In business it makes sense to under promise and over deliver. Not the other way around.

No, it is a nuanced issue specific to each business.

Maybe for normal businesses, but overpromising and underdelivering still made SpaceX and Tesla deliver more than any other business.

Now, I know what you are saying and I’m all for Musk and SpaceX but... it’s a bit funny to think of rocket launches as a buisness where over promising and under delivering makes sense!

Yeah it reflects the terrible state of the rest of the industry... I really hope that Tesla and SpaceX weren’t so exceptional, but just two of many...

That is true, but you know what else is true? This is a public company, not an Avengers movie trailer.

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.

We hear about companies who "missed their numbers" daily. What we don't hear is news of the CEO being given jail time.

“Overly optimistic”, by definition, is asking for trouble.

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.”

> I’m not a lawyer, but I think

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.

Tesla's General Counsel is Elon Musk's divorce attorney. The SEC settlement contained some not-very-subtle digs at his qualifications to keep Tesla/Musk within the bounds of securities regulations.

If they knew they were rosy, or didn't make an honest effort to get them right, then it's intentionally mislaeding the stock market.

What would happen if Bill Gates says "Windows 10 is the best windows ever", is he misleading the stock market? What if he doesn't actually believe its the best Windows? Seems like trying to see a line between optimism and projections an that's idiotic. Seems to me that legally an accusation of misleading the stock market should happen only when putting fake data on official marketing reports or sales reports not about CEO's tweets.

"Windows 10 is the best Windows ever" isn't a projection, though. People wouldn't rush out to buy MS stock based on a statement like this. I hope not, anyway.

"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.

Exactly. The technical term for things like "best ever" is puffery: https://en.wikipedia.org/wiki/Puffery

"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.

Consider: yesterday Amazon announced quarterly results and projections. It wasn't very rosey: next quarter will see growth, but less than usual. The stock took an immediate 10% hit.

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.

"Windows 10 is the best windows ever" is not a statement of fact that has a direct impact on a stock's earnings and price. "We are going to sell and ship ten billion Xbox Ones" does.

>What would happen if Bill Gates says "Windows 10 is the best windows ever"

That would be considered puffery: https://en.wikipedia.org/wiki/Puffery

can be criminal if there is even an iota of a possibility that they could be met

That would make all sorts of pump & dump scams perfectly fine and they aren't.

You're almost certainly right that the part about this being a "criminal probe" seems wrong, but there are possible legal issues from a civil perspective.

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...

You call it pessimism, I call it outlining risks that could materially change the financial outlook of the business. People routinely underestimate risk and overestimate rewards.

The SEC thing was civil, not criminal.

If there is a 1 in 3 chance or better of achieving the goal, it's probably legit, if it's 1 in 100, probably illegal. Something around there.

His settlement with the SEC over his "funding secured" tweet required Tesla to put in place a system to monitor Musk's tweeting.

Given that, the SEC is less likely to give leeway for further over-optimistic tweets.

It's also worth keeping in mind the WSJ has a very bad track record for climate change denial.

See, for example, https://www.theguardian.com/environment/climate-consensus-97...

This article is highly questionable given their history.

That article is the WSJ Opinion page which is very different from their reporting.

"secured" is a vague word in itself.

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"

There's no interpretation of the phrase "funding secured" in the SEC-regulated world which includes "I've had conversations with an investor who didn't immediately say no to the idea".

What other interpretation can "funding secured" possibly have other than "we've got to funding to go ahead with this"?

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