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Comment by pryce | Hacker News Reader

If someone's stock is as incredibly overinflated as Tesla has been for so long, choosing the most effective way to liquidate stock without triggering a run becomes a social engineering problem with the incentive of a multi-billion dollar payoff.

Honestly I think other people trying to read this situation in some way that ignores a multi billion dollar incentive just sitting there is utterly naive.

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You say social engineering, I say criminal fraud.

But this is only because everywhere, everything is securities fraud

https://www.bloomberg.com/opinion/articles/2019-06-26/everyt...

It also does not make sense to do this kind of fraud, as Tesla stock will surely tank on the news of it being used as a collateral in an acquisition deal.

Nah, the "everything is securities fraud" trope is qbout some (usually immoral) behavior that a shareholder argues would materially affect the stock price, and which was not disclosed to shareholders.

Elon Musk announcing some M&A news with the intent of effecting price changes in TWTR,TSLA securies would be pretty boring, vanilla securities fraud.

That depends on the amount especially since he's already been caught doing this when he claimed he would take Tesla private

I knew it had to be Matt Levine :)

More precisely, securities fraud.

Though it's weird to me that it's fine to sell stock just because you want to, but pretending you didn't want to could qualify as securities fraud.

And that seems to be what the concern boils down to? The issue of whether he defrauded twitter is a separate thing. (Though I'm inclined to say no, because twitter came at this in a very skeptical and careful way, and normal fraud requires fooling someone into material loss.)

Having driven Twitter's value down by $15B, I can't imagine Musk won't be sued by shareholders for it, since his claims of fake accounts are as yet unproven. The same goes for the damages this little venture has inflicted on Tesla stock. The SEC and FTC are likely to cost Musk Enterptises a pretty penny in legal fees before all of this ends.

The $1B penalty for backing out of the Twitter deal is the least of Musk's concerns.

it's somewhat hard to argue that musk is responsible for the decline given that the entire NASDAQ is also down. you might be able to find some contribution, but only a relatively small amount of it.

But Musk set the price at $54 by agreeing to buy Twitter at that price. If this deal were guaranteed to go through, shares should be trading at that price until the sale is complete. Trading at above that price means shareholders would lose money at closing, and trading at below means someone is leaving money on the table. Market forces should cause the price to converge at $54.

The fact that it’s trading lower means that investors don’t expect the deal to go through. And who exactly as been doing his best to very publicly bring the deal into question? Elon Musk.

If he was the only thing dragging twitter toward $54, and then he stops dragging it as hard, it's hard for me to see that as driving value down. If he hasn't caused any other damage, that's just twitter returning to its natural value.

Given the agreement, it sure seems to me that Twitter's natural value is currently $44 billion dollars.

Is it down $15B from the post-announcement peak, or from pre-announcement? I’d think only the latter would hold up in court.

Having driven Tesla's value down (below the market decline) by nonstop trolling, …

Sure, let’s pretend the entire market hasn’t sunk.

> Sure, let’s pretend the entire market hasn’t sunk.

Why does that matter? Musk agreed to buy Twitter for $44 billion. If he comes through, that's the value of Twitter. If he doesn't, then the value is something else. The difference between $44 billion and fair market value is just the expectation of investors that Musk really will pay. So yeah the drop really _is_ due to Musk trying to back out of the deal. If Musk weren't backing out of the deal, then then Twitter's value shouldn't drop regardless of the fact that the rest of the market has.

Intent is the core issue of most white collar fraud.

I'd say that's because harm (and reliance) is usually easy to prove.

From my understanding, US law is based on King George III, which inherently requires intent to be proven.

In other words, US law judges by intent vs actual action/damage.

One example of this is: Credit Card Fraud is prosecuted based on max possible theft vs money stolen.

https://www.law.cornell.edu/wex/intent

Mens rea is a necessary but not sufficient component of proving a criminal charge - the defendant intended to break the law. Actus reus is also required, which is actually doing the act.

US law doesn't "judge by intent". If you try to murder someone but you don't succeed, you don't get charged with murder.

Yes, I agree with you and I should have worded my comment better.

To keep with the murder example, intent is what separates 3v2, in most states. Yes, a crime was committed but was the intent to cause bodily harm vs actions causing bodily harm, without intent.

There's a contract in place (that waves due diligence!).

If he entered into that contract with no intent to honor it...

As Levine has repeatedly stated he didn’t “waive due diligence”. It was a binding purchase agreement. It’s meant to come after all of the due diligence.

He didn’t waive his right. He just opted not to do any before buying.

Is there any hope that this time he will pay for his shenanigans?

We've had the Teflon Don, now we have the Teflon Elon.

I'm sure he'll be able to weasel his way out of this. He'll spend a crap ton of money to lawyers just to be able to say he doesn't have to pay for it, but he's still paying for it on a smaller scale and not in public. Anything to put up another W on the scoresheet.

The counter point here is that the Twitter board is not poor, and the incentives to force the buyout (or at least extract more money from Musk) are huge.

Yes, and they are the side I'm cheering for in this match. Even if Musk is forced to pay, I doubt it will slow his twitter tirades down. In fact, I'd expect him to come out harder to prove whatever his little ego thinks needs to be proven.

I legitimately think removing Musk’s account from the platform entirely might be their best bargaining chip to actually get the deal to go through.

They just reinstated Alex Berenson, apparently in a complete win for him (details are not yet public)

Removing musk account, if they do thAt, might backfire spectacularly.

How might it “backfire spectacularly”? What could Musk possibly do to harm Twitter any further?

Applying unrelated leverage between two parties is usually not looked at favorably by court. And court is likely where the musk/twitter thing will be settled.

Not Musk but his gigantic fan base on Twitter would.

“I said, ‘What are you going to do, stab me?’”

- Stabbed man

Isn’t the entire breakup clause contractually written in?

From my understanding, the current choice is:

1. Does Elon get sued by Twitter to force sale, per the initial agreement, where Elon agreed to allowing Twitter to force a sale.

2. Does Elon just pay the billion separation clause and walk away.

Do you see it differently?

There is no option 2. That was a proviso in case Elon was unable to secure financing. He secured financing, so now he has to buy Twitter. Or they can sue him.

https://www.sec.gov/Archives/edgar/data/1418091/000119312522...

Is there a different version of the doc than listed above? I couldn’t find any revisions and it sure seems that there are options available to Musk.

The clause about the $1B penalty says nothing about separation. That clause only activates if the deal is stopped by some outside entity, such as the SEC, or if the two parties mutually agree to stop the process.

In all other cases, Elon has committed to give them $44B in exchange for the company.

https://www.sec.gov/Archives/edgar/data/1418091/000119312522...

There’s quite a bit about separation, sections 7 & 8

What reads like simple English to you or I does not get read the same way by lawyers. Once lawyers are involved, all reasonable logic goes out the window in my perspective.

Ever since what "the definition of 'is' is", my whole outlook on lawyers was just obliterated.

Not for sure why you're downvoted, because you're right. Lawyers do not operate on logical basis. They operate on interpretations of logic. I found this out when buying my house. Interacting with the lawyers was completely miserable because they live in their own little world. They expected me to just know things that they would poorly specify, requiring several emails to clarify, and then when I would point out mistakes, logical inconsistencies, or poorly defined things in the contract, they would just shrug it off or sort of grudgingly fix them, seemingly just to appease me. Then they would just dig their heels in the ground about what the contract "says" because the contract "says so", even though it made no logical sense. Because the contracts aren't what they say logically. They say what they say based upon a sort of colloquially agreed upon interpretation of them. Lawsuits then center around this colloquial agreement and not around the contractual logic. It's an excruciatingly frustrating world to be introduced to. I wish to never have to deal with lawyers.

> Ever since what "the definition of 'is' is", my whole outlook on lawyers was just obliterated.

Is that in reference to something? Got a link or an article or something?

>Is that in reference to something? Got a link or an article or something?

Very much yes[0]. It was one of the defensive lines from Bill Clinton. I was still in high school during this, and it set me on a very bad path of thinking how to twist anything and everything anyone ever said. After all, if the pres can do it, then we should all be able to do it.

[0] https://slate.com/news-and-politics/1998/09/bill-clinton-and...

You say OSINT, I say, you just used google with quotes.

I have accepted that I will eventually see Musk put behind bars--all of a sudden--by the SEC. I get the sense that they are always building a case on him. He would be a great "Martha Stuart."

SEC can only levy civil penalties, criminal (aka jail) is another matter. Which they are happy to refer to the relevant prosecutor, it just isn’t their job at that point.

What's the difference?

One’s the technique, the other’s the goal. Like smash-and-grab and pickpocketing are two different ways you can steal things.

I wondered this early on. More so when I thought he would actually buy twitter as Twitter had had some serious share price decline at that point for over 6 months, so it's a way to shift money from an inflated area to a more moderately priced one. Plus he obviously likes the platform in general.

If true, I don't think it's the case he did it intending to pull out. Seems unlikely he would have signed the billion dollar exit clause when he could have easily dragged the initial talks on a bit longer for largely the same result before 'changing his mind'.

My best guess is the offer was genuine (thought impulsive) but as he's seen the price drop further, now his offer seems too much. Why pay $44bn for a sub $30bn company. Kinda simple but seem most likely than all these more complex theories.

So you acknowledge the possibility that he acted impulsively but think his other decision were all rational and intelligent?

Happy to have a conversation with you on reasoning, and apologise if I'm wrong in how I read your reply message, it feels like a curt criticism statement, not add value to discussion.

But anyway, yes I believe it is possible to be impulsive followed by more logical decision making. This process seems fairly commonplace in the world I observe.

I apologize for being curt, I thought my statement was obvious. Here's some lines from your comment

"If true, I don't think it's the case he did it intending to pull out. Seems unlikely he would have ...... My best guess is the offer was genuine (thought impulsive) but as he's seen the price drop further, now his offer seems.. "

Considering his impulsive behavior, which has prior occurrences. 1. Making an immature derogatory remark to one of the people trying to assist with that cave rescue. 2. His statement that he was taking tesla private that he retracted later 3. This situation..

Why do you think he's acting logically now? Why is it your best guess? Your words

> Why do you think he's acting logically now? Why is it your best guess? Your words

1) As said, its not uncommon to act impulsively, followed by more logical decision making after. From your examples, I dont feel listing a few impulsive cases removes his ability to act logically. And the sequence I've guessed seems the most likely in my kindly eyes.

2) Because its not my second best guess, or any other.

3) See 1) & 2)

I think we have a disconnect on probability and booleans. Elon musk can act logically or impulsively. Each historical act of impulsiveness increases the probability of future impulsive acts

Musk probably believes he can grow the company into a $100B+ company.

I feel there is huge profitability growth potential there. If you look at the better quarters the revenues can be significant. If you ran that against a lean headcount and were genuinely A-political there's really a money maker there potentially.

That said the risk is huge as the world can move on quickly as we saw with MySpace. And Elon s becoming increasingly a political risk factor himself in a business were peoples view on the leaders/owners really matters.

My point is he can pay more because he believes he's going to make much more in the future. There is a downturn but most people suffer downturns through life and hold through them. It's just childish to back out now but I would expect that from him.

His views really don't matter. Nothing happened to Facebook and nothing will. People will just continue fighting (tweeting).

I see you point, but being childish in backing out may not mean much if you feel you're overpaying $14bn, or if not him his funding partners. People have a much stronger emotional response to losing something than gaining something.

But really who knows. Maybe he realised he had too much on his plate, or any number of things.

I think the incentive you mean is to move out of a stock you think is overvalued (I agree about that). But that works with any purchase, not just Twitter. And with that motive in mind, Twitter would be a really unwise company to buy, when there are so many companies available with actual asset value around. Wouldn't you rather buy something with your over-inflated stock that had some value-preservation attributes? For example, you could buy a mining stock, or a railroad. With Twitter, you're going from the frying pan into the fire.

According to the above theory, a value move (diversifying from TSLA to something else) is precisely what must be avoided.

The move would have to be perceived as financially irrational for it to be operable in terms of distracting the market from the diversification.

He could sit next to whatever dark lord descendents currently run Ford, for less. But that would make Tesla into a serious car company; which is a real business deal, for someone serious about changing the world.

This is just one of the impacts of the high potency products at the local cannabis dispensary. You can't function if you wake and bake on that shit.

This would have been switching from an overinflated stock to a much more overinflated stock.

The theory presumes he never intended to actually buy Twitter stocks, just keep the cash.

But why would he need cash? To buy another company, or start one of his own?

He knows Tesla is overpriced and wants to take some of his money off the table. He knows it is due for a major haircut.

Why would anyone need cash ahead of a recession? I wonder...

To prevent itbecome worthless from a Tesla stock crash. Either putting it in the abnk or other investments.

To buy more tesla stocks than he had before, at a lower price point each.

He doesn't hide he would like to have the company private. Owning more stocks moves him closer to this ideal.

Just speculating, I have no inside info on what he really wants to do with the cash.

Minus 1 billion for a termination fee. Why would he have agreed to that if it was his plan all along?

If he was able to exit his Twitter stock position after the jump in price he created it would wash out the $1B.

If he exited TSLA to the tune of the remaining $10B or $15B, staving off a 50% decline in that value then he came out way ahead.

It seems very likely to me he will find a way out of the $1B fee and end up settling for some fraction.

Of course if he just borrowed against his TSLA to facilitate this deal, as I have read he did, then his profit on the move depends on the terms of the loan.

The $1B termination fee is the tip of the iceberg. Changing your mind is not covered in the termination clause, and his evidence Twitter mislead him is contradicted by his own statements prior to the deal. Twitter is owed substantially more than a billion. Likely closer to ten.

He sold something around $10 (+/- 2) billion of Tesla stock. The loans don't matter as they were (a) tied in to use only to buy Twitter and (b) allowed to expire last month.

Sell $40b of Tesla without causing a dip, is worth a lot more than $1b. A 3% dip from news he's selling that much stock would cost way more than $1b.

It's not just the potential impact upon markets. Shareholders of that size have legal obligations as well. If you own that much of a company you are specifically and legally precluded from selling it all at once in many circumstances. Bill Gates could not sell his entire Microsoft stake all at once back in the day into an open market as it might cause the security to drop significantly and for other, legal reasons. Certainly, the securities exchange act of 1934 requires disclosures of certain sales of shareholders above a certain percentage of shares of publically traded companies, but also more nuanced and exacting laws regarding national security interest prohibit the sales of securities and ownership to specific parties or foreign interests. When the scale of your ownership stake is in the billions, that certainly limits the potential buyers of the entire stake to a short list.

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