Now, Musk has gone to an entirely new level. He hates the people people who short his company because they dare to point out that Tesla is insanely overvalued – and they are willing to support this proposition with their money. And they don't call Musk a Messiah which is what he's used to from his low-IQ fans.
Am considering taking Tesla private at $420. Funding secured.— Elon Musk (@elonmusk) August 7, 2018
On top of that, he needs the stock price to be above $359 or so, otherwise the maturity of some special $900 million convertible bond will be much more costly in Fall 2018. So why wouldn't he manipulate the price by claiming that the right price should be $420?
Now, 420 is slang for "marijuana". On April 20th (4/20), leftists celebrate the Marijuana Day and they get high – and therefore ready for April 22nd, Lenin's Earth Day. It is also the country code to call my Czech homeland – where people may hold 15 grams and 5 plants of marijuana legally (so the same number 420 doesn't have to be a coincidence). He may always say that he was just joking. But it was totally obvious that the market – filled with "investors" who are low-IQ fans of Musk – would react. And it did. The price jumped by some 10% towards $380 or so, matching the previous all time high.
(By the way, the cryptocurrency prices dropped some 10% in recent 24 hours. These two price changes could be related. The same "investors" could have sold the Bitcoin and buy Tesla yesterday.)
Later, he would add additional tweets and a letter to Tesla employees which reiterates his plans to privatize Tesla. But in this letter, the promises of "secured funding" are no longer mentioned!
Now, let me copy an answer I gave to the question Do you think Elon Musk is serious about taking Tesla private?
No, I think it was a complete nonsense. He will try to cover it as a joke about weed but because it was so obvious to everybody (and probably him as well) that the tweet would have a huge impact on the stock price, anyway, one may say that unless the U.S. has turned into a full-blown banana republic, he should better be arrested soon.
A reasonable market capitalization of Tesla could be some $2 billion – a company that has a hypothetical chance to sell some 100,000 cars a year with a profit sometime in the future (no profit has shown up so far). A cult has inflated the stock price so that the capitalization was above $60 billion and rational people shorted the stock because this price inflation isn’t sustainable. Mr Musk hates them because they dare to point out that the company is heavily overvalued and he is not a Messiah. He hates to hear it because he got used to low-IQ members of his cult of personality who keep on repeating this exact thing: Elon Musk basically is God!
So he just decided to manipulate the price, send the price up, and some of the shorters were burned. About 25% of Tesla’s stocks are shorted – perhaps some $13 billion of investments is sensitive to the price of the Tesla stock in the negative way. By a 10% spike in the Tesla price, he made the shorters poorer by $1.3 billion or so (collectively) within minutes. Since the early 2018, they have collectively lost some $3 billion. It would be $4.5 billion if the price went to $420.
In the tweet, he claimed to have secured the funds. He owns just over $10 billion of the Tesla stocks so to buy the rest of the company that would be worth $72 billion at the price $420, he would need to have some extra $60 billion of cash in his mattresses. Or maybe a mentally ill Saudi Arab prince could donate those $60 billion to him. I’ve looked at the list of wealthy retarded Saudi princes and found no good candidate.
$60 billion is much more than the largest buyout in the mankind’s history so far – and here it should be for a company that has never produced an annual profit in its 15-year existence. (In the tech world, the largest buyout so far was the $24.4 billion Dell's privatization of Dell five years ago (the largest buyout ever was in 2007, the $45 billion buyout of TXU, a Texas energy company, which came bankrupt afterwards); the company just went public again a month ago.) It simply doesn’t add up. It makes no sense. No sane rich individual and no bank with the basic survival instincts would provide him with this cash. The risk of committing a financial suicide is just too high. $60 billion is much more than big banks may lend you – this amount is not far from the total value (capitalization) of some of the very large banks themselves. Of course they can’t lend “their whole body” in this way. Comparably huge loans have usually required a community of dozens of banks.
In 1934, the U.S. stock market regulator SEC was established exactly in order to fight market manipulation of the type that Musk’s tweet is a textbook example of. Lies that are spread out there to push the stock price up or down which the originator of the lie may abuse by trading stocks correspondingly. Unless the U.S. is a banana republic, Musk will be at least ordered to pay the $1.3 billion damage he caused to the shorters yesterday, and he should probably be arrested for “market manipulation” and “securities fraud”, too.
Well, more precisely, the SEC folks should show up in his house soon, check whether he has the cash or (loan, donation…) documents guaranteeing that he has the funding, and if he hasn’t, it establishes that the tweet was untrue and this issue should be solved rather quickly because this story would clearly be the most important event that the SEC is obliged to deal with these days. How many cases of manipulation where over $1 billion was stolen from some pockets into others within minutes is the SEC investigating right now?
Incidentally, even if he had the funding (this bragging about “funds that are secured” is no longer mentioned in his letter to employees that was published after the tweet), the tweet would still be legally problematic according to many lawyers – it would be “improper communication”. When announcing plans to go private, the prospective buyer should order halting of the trade before the publication of the news. Also, no target price should be publicized in this announcement of the plan.
Here on CNBC, a former chief of SEC named Harvey Pitt explains why the motive of the tweet is important and how he would proceed if he were the current SEC chief to establish that Musk has committed the aforementioned crimes. (See also Securities Lawyers Shocked... at MSN and Musk Invited a Lawsuit at Yahoo Finance.) They also discuss a Musk suggestion that the money of the current investors could be reorganized in a fund that allows the company to go private. (Musk has written numerous additional cryptic tweets suggesting that the company will be public and private at the same moment. Employees may remain shareholders, we have heard aside from other bizarre statements.) The former SEC official says that the usage of the vague, piecewise information and the conditionals contradicts the main purpose of the SEC laws that were written down and approved to guarantee valid, concise, packaged information about the “state of the affairs now” to the investors. The purpose of these laws is to make such fraud rare – it could otherwise be omnipresent.
(Mr Pitt added 6 minutes of comments at CNBC on Wednesday. Pitt said that he needs to have the line of credit without assuming any uncertain assumptions, otherwise he committed fraud. Also, Musk's statement that investors have already approved something is impossible because according to SEC rules, that would only be possible if the plan had been published before. Pitt says that SEC should act faster than "in months". It has the authority to demand Tesla folks' statements under oath. SEC can subpoena folks, call them by phone. If Tesla were sensible, the company would actually try to send the information to the SEC before the SEC calls. Both civil and criminal charges are at stake – compensation and prison. He could need to compensate not just shortsellers but also the regular sellers who sold before the jump. Under Pitt, the SEC would go through Musk's e-mails and telephone calls to determine the intent. Well, I think that his inbox is full of "I will destroy these shortselling motherfudgers" so this segment of Musk's route to the jail could be straightforward.)
Even if there were a legal way to reorganize the investors into investors of a fund, he still needs to have the cash for the premium – that is paid to those investors who don’t want the reorganization of their assets. And that means some $10-$20 billion of extra cash, too. That’s still a large amount, especially relatively to Tesla's profits even in the most optimistic scenarios. So this scenario is less unlikely than the scenario in which all minor shareholders are expelled but I still find it unlikely.
The New York Times has talked to numerous securities lawyers and their knowledge relevant for this Musk's and Tesla's trouble seems interesting and relevant.
You know, some Tesla fans or lukewarm fans constantly want me to predict what will exactly happen, when Tesla goes bust. I just don't know and I don't pretend to know. The company has survived for 15 years – although it has generated a loss in every single year. Even though the stock is massively overvalued and Musk owns over $10 billion of this stock, this company has burned an even higher amount of money from subsidies, and it has borrowed a greater amount, too. But it still hasn't been enough to make it profitable for 15 long years.
Musk says all these Smolin-style arrogant clichés that he – a visionary or a seer, if I use Smolin's word he used for himself – doesn't want to be verified every 3 months. (The fact that the company has been only burning cash for 15 years, not just 3 months, is cleverly omitted – just like Smolin cleverly forgets to mention that he has only written crackpot papers in his 40-year-long "career".) But this kind of verification is essential for things to work properly. Moreover, if he got anything like a $60 billion loan from anybody to make the privatization possible, he would surely face much greater pressures than the pressures from the investors during the quarterly presentations.
Already now, just like in communism, the Tesla stock price is completely disconnected from the financial flows of the Tesla company. They have nothing to do with each other! The Tesla stock is mostly just an independent Ponzi scheme, like the Bitcoin, that is driven by the nurtured fanaticism of the low-IQ "investors" and Musk's P.R. stunts and other highly unusual or criminal financial moves and tweets. But can I be sure that this carnival act will stop by the end of the summer? By the end of the year? By 2020? I can't be sure at all. For example, he may calm down, stop the loss from the exponential growth, and he may enjoy the stolen tens of billions of dollars from a company that has devoured a lot but never produced a profit. The company may formally survive in spite of that.
The time scale of the survival is 15 years and this man is willing to go where no one could have predicted it. No one has predicted that he would demand money from the suppliers. No one has predicted the pedo slur, either. Well, some bloggers at the Financial Times have predicted two months ago that he would announce plans to make Tesla private – but they were clearly joking. Well, they were right, anyway. Maybe he plagiarized them.
OK, now he has made a tweet that has increased the capitalization of Tesla by the same amount as Musk's net worth – within minutes. This tweet is almost certainly a securities fraud and a market manipulation – we just don't know whether the SEC that was founded to fight this exact kind of misconduct works at all. Musk should be arrested within a month – but we actually don't know whether he will be arrested. Tesla might be too big to fail and Musk may be too big to jail.
But this kind of manipulation and stunts – that are far more important for the capitalization of the company than any success in attempts to produce cars profitably – may always be upgraded to a higher level. Now we had a textbook example of market manipulation that added over $10 billion to the Tesla capitalization and robbed the shortsellers by more than $1 billion.
Musk can go to more extreme steps, however. He may threaten Trump with destroying the New York City with some amazing weapon spreading by tunnels and powered by the renewable energy if Trump doesn't pay $300 billion to Musk. Is that likely? I don't know. It would be very unlikely with any decent CEO who is afraid of breaking the law and who is actually doing business. But we've been proven that Musk isn't one. He's a lunatic at large.
To predict what will happen in these circumstances is an entirely different science than the prediction of the stock price or financial results of a proper company. To make predictions about Musk is like predictions what will be the next terror attack by Osama bin Laden and/or when the U.S. forces finally get him. I didn't know the date in Osama's case – and I don't know it in Musk's case. I only know that it has already become insane but there's still a potential for the insanity to grow a lot.
Now, in efforts to avoid the jail, he will probably try to create fog about the takeover. He has discussed it with some other VIPs at Tesla, we're told. That's great. But he has tweeted that he has secured the funds – some $60 billion. I think that SEC is obviously obliged to verify this crucial piece of information and if it doesn't add up, it's a securities fraud. Period. Every untrue piece of information of this kind provided by the CEO is a fraud.
Like The Wall Street Journal, I can't imagine how the privatization plans could add up. It walks like a duck, quacks like a duck, so it probably is a securities fraud. What's most amazing is how many people consider this breaking of the most elementary rules – not only the rule that a company should better produce a profit instead of just hype and promises but the most obvious examples of fraud, lies, and manipulation – by Musk to be a sign of his being a genius. Musk is a spoiled boy who gets billions of dollars annually to play with, he burns all of it, and he wants the amount of money wasted per unit time to grow exponentially while he wants the checks and balances to exponentially decrease – that's why he hates being a CEO of a public company, too. Clearly, if you allow him to do what he wants to do, he will do it – he may burn trillions, too, and if someone made a private company for Elon to play, Elon may burn quadrillions, too.
Sorry, fans, but all these securities frauds etc. is what a stupid naughty boy does before he's spanked so that he can't sit on his aß for the rest of his life. Whether this will happen to Musk as well depends on whether the U.S. with all of its SECs and other institutions has become a banana republic.
The most relevant section of the SEC rules is probably the following:
§ 240.14e-8 Prohibited conduct in connection with pre-commencement communications.
It is a fraudulent, deceptive or manipulative act or practice within the meaning of section 14(e) of the [Securities Exchange of 1934] Act (15 U.S.C. 78n) for any person to publicly announce that the person (or a party on whose behalf the person is acting) plans to make a tender offer that has not yet been commenced, if the person:
(a) Is making the announcement of a potential tender offer without the intention to commence the offer within a reasonable time and complete the offer;
(b) Intends, directly or indirectly, for the announcement to manipulate the market price of the stock of the bidder or subject company; or
(c) Does not have the reasonable belief that the person will have the means to purchase securities to complete the offer.