Elon Musk Settles SEC Fraud Charges, Must Step Down As Tesla's Chairman 234
Soon after it was reported that the Securities and Exchange Commission (SEC) sued Elon Musk for making false statements related to his abandoned efforts to take Tesla private, the SEC announced today that Elon Musk has agreed to settle the fraud charges. In a press release, the SEC says "Musk and Tesla have agreed to settle the charges against them without admitting or denying the SEC's allegations." The settlements, which are subject to court approval, require the following:
- Musk will step down as Tesla's Chairman and be replaced by an independent Chairman. Musk will be ineligible to be re-elected Chairman for three years;
- Tesla will appoint a total of two new independent directors to its board;
- Tesla will establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk's communications;
- Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.
Slashdot reader Rei writes: In the wake of initially refusing a settlement offer over the wording, Elon Musk has now settled today with the SEC, concerning his tweets about taking Tesla private. As per the settlement agreement, there is 1) no admission of wrongdoing; 2) Musk and Tesla will each pay a $20 million fine; 3) Musk will remain as CEO of Tesla; 4) Musk will be prohibited from serving as chairman of Tesla for three years; and 5) Tesla must appoint two new members to its board of directors. An additional clause seems apropos: Musk must "comply with all mandatory procedures implemented by Tesla, Inc [...] regarding (i) the oversight of communications relating to the Company made in any format, including, but not limited to, posts on social media..."
- Musk will step down as Tesla's Chairman and be replaced by an independent Chairman. Musk will be ineligible to be re-elected Chairman for three years;
- Tesla will appoint a total of two new independent directors to its board;
- Tesla will establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk's communications;
- Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.
Slashdot reader Rei writes: In the wake of initially refusing a settlement offer over the wording, Elon Musk has now settled today with the SEC, concerning his tweets about taking Tesla private. As per the settlement agreement, there is 1) no admission of wrongdoing; 2) Musk and Tesla will each pay a $20 million fine; 3) Musk will remain as CEO of Tesla; 4) Musk will be prohibited from serving as chairman of Tesla for three years; and 5) Tesla must appoint two new members to its board of directors. An additional clause seems apropos: Musk must "comply with all mandatory procedures implemented by Tesla, Inc [...] regarding (i) the oversight of communications relating to the Company made in any format, including, but not limited to, posts on social media..."
Chairman vs CEO (Score:3)
Re:Chairman vs CEO (Score:5, Informative)
The Chairman is a position on the board of directors. The board of directors represents the shareholders, and in general does not manage the day to day affairs of the business; but rather hires a Chief Executive Officer (who in many organizations is the only actual direct employee of the board of directors) as the most senior manager. The board oversees long-term strategies, approves annual budgets, and in most private companies is elected by shareholders who hold common shares (one vote per common share). If Musk is no longer on the board of directors, even if he remains CEO, it is conceivable that the board could fire him, or at least intervene. He will be subordinate to the board, which is why I think the SEC is also requiring the number of directors be bumped up to dilute any control he may have over the board.
Re:Chairman vs CEO (Score:5, Informative)
Just to clarify:
Musk still has a seat on the board of directors. He gives up only his position as chairman of the board of directors.
The appointment of the 2 additional directors will serve to dilute his control over the company, as it is the board which sets out the directives the CEO/president (aka Musk) must follow.
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Good catch. So he keeps his position as senior manager, loses the position of chairman which means, at least technically, he loses the ability to set the overall direction of the company, and dilution of his effective authority over the board means he very much becomes purely management now, and can be overridden, dismissed from the board, or even fired as CEO.
Honestly, this is the way most public companies have to go. At some point, if you are publicly trading and have a significant number of shareholders,
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Chairman runs the meetings and generally has very little additional power than an ordinary director. It's mostly a prestige thing.
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> The fact of the matter is the chairman of the board is the "proper channel" between the board and upper management. That's it so far as a requirement.
--- no? That's not the way it's worked on any of the boards I've sat on. The board and committee passes resolutions that are provided to management.. The board and CEO freely talk together in meetings. Individual members of management contact board members and vice-versa as appropriate. Yes, if it is determined that the board needs to have a "serious
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It's worth noting that Musk is by far Tesla's largest shareholder, and it would be well within the realm of possibility for him to form a voting coalition with other large shareholders to control the board if he so chose.
Re:Chairman vs CEO (Score:4, Informative)
I am pretty sure the rules are the same in your country because this much is pretty global. Nominally the corporate structure is as follows:
Stockholders own the company. There can be different classes as stock but as a whole the majority of stockholders can vote for the corporation to do anything legal.
The stockholders appoint a Board of Directors and the Board Chairman. They can be removed by the stockholders so they are accountable to the stockholders. Directors are usually stockholders themselves but not necessarily or so.
The Board of Directors decide who the CEO and usually who all the major officers of the corporation are, such as the #2 guy and the CFO and corporate counsel. The bylaws (as approved by stockholders) will generally also have the sole power for certain actions like selling dock, taking out loans, etc. Often large lenders want to see Board approval before granting credit. However the CEO reports to the Board.
The CEO is in charge of everything else and if he/she doesn't do what the board likes the board removes him/her and gets someone else.
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the CEO is an employee of the company. The board of directors represent the interests of the investors and are elected by the investors and hire and fire the CEO at will
New chairman and two new directors, I think its 50/50 he's out as CEO within 6 months
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This means Musk is going to have a boss.
The CEO runs the company on a day to day basis, and all managers in the company report to him. The CEO and other C level executives are appointed and supervised by the board of directors, which is led by a chairman. The board can dismiss a CEO, veto his decisions; they decide on some kinds of proposals a CEO might make, in other cases choose whether to put something (like being acquired or going private) to the shareholders. The chairman on his own can do none of t
This could be good for Musk, and for Tesla (Score:3)
For most of my career I've founded and run companies, always companies doing something new and different. I didn't mind the risks involved, and I enjoyed trying to accomplish something that no other company had done. I was pretty good at starting companies but not as good at running them after they got going and were somewhat stable.
I think in some ways Musk is similar - as soon as he has one company up and going, even being *on its way* to having a saleable product, he goes off and starts another company.
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Is Musk really the founder of Tesla? (Score:2)
Didn't these other guys (Eberhard? Straubel? Maybe Tarpenning?) found Tesla, or at least the started some kind of electric car company is a garage before Musk came along?
At the very least, Musk is the Jobs and some other dudes or dudettes are the Woz of Tesla? But hasn't Musk glommed on to the limelight; is he the Stalin of Tesla?
There must be a lot of really smart people at Tesla and SpaceX, but I guess Elon Musk is the public face and the "visionary." I am getting to think that Tesla needs to mov
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Could someone who understands what the difference between these two posts is possibly explain it for the benefit of those of us
The Chairman is the head of the board.
The CEO is an employee of the board.
Currently Musk is his own boss with a bit of mediation by a group of people advising him about himself and what's good for the shareholders.
Going forward Musk will an employee responsible to a group of people representing the shareholders.
The Board of Directors is like the Politburo (Score:2)
A board of directors is the Capitalist version of the Politburo, or the Politburo in a Communist government is like a corporate board of directors.
Actually, there is the Central Committee to which the Politburo reports, but you get the idea.
In a political democracy, which neither a Communist government or a Capitalist corporation are, you don't have such a thing, but you have various checks-and-balances such as an independent judiciary or a bicameral (two-house) legislature or three-branch legislature-
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I am not a coward, I forgot to log in. Responses will appear from this account
That was one expensive tweet (Score:2)
So, the capsule summary here: a single drunk-tweet ended up costing Musk+Tesla a cool $40 million.
It's a good thing I don't use Twitter. I can't afford that kind of cash.
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Maybe that Joe Rogan interview didn't help either.
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The summary for the rest of us is that his twitter feed is going to become a lot less entertaining now.
Those are some expensive tweets (Score:2)
Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.
Those are some expensive tweets.
Oh brave new world, that has such social media in it!
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Just expensive enough to be painful, not expensive enough to cause lasting damage. Just right.
Just a friendly reminder (Score:5, Insightful)
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not to screw with wealthy, well connected investors.
Like public pension funds. When you think fat, rich, greedy bastards, think CALPERS before you think Rockefeller.
What do you have against public pension funds? (Score:3)
They haven't been in the past (Score:3)
Details missing (Score:2)
Likely he had an offer but his definition of a solid offer and the SEC's legal definition of are two different things (this is why you run things past lawyers 1st.) I heard some rumor he was working too much and was thinking of giving up the chair anyway. What has to be pissing him off is the appointment of outsiders to the board; which makes one think that there are other forces at play. Aside from him strongly feeling he did no wrong since he thought he had a legit offer.
He should have gone private wh
Don't Tesla supporters (Score:2)
ever come up for air?
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I'd say it's also a good example of why Twitter is a really awful communications channel; one which should not be used by... well... anyone who aspires to be taken seriously as anything besides a semi-coherent rambling loon. Really, if your thoughts, on just about any topic, are so lacking in nuance that you can express them in 140 characters; you should probably keep those thoughts to yourself.
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I think it's simpler than that. There's no need for a cabal of elite financial illuminati. It's simple politics. Elon Musk told 45 to kiss off and left that "tech advisory council" of his after he reneged on our obligations under the Paris climate accords. Musk has been vocally supportive of environmental controls and alternative energy, which 45 either personally hates or hates as the proxy of his coal and oil industry backers.
And while the SEC is nominally and theoretically supposed to be "independent
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No, the desire is to get it resolved so it isn't an issue anymore. It is too much of a distraction for the company (and especially the stock). Curious if it is a better deal than was made previously.
Pocket Change (Score:2)
CNN on Tesla (Score:2, Insightful)
https://money.cnn.com/2018/09/28/technology/tesla-stock-analysts/index.html
Summary: stock price plunging, expected to keep falling to $200-225/sh.
Company's ability to raise needed $2B by 4Q to avoid bankruptcy in doubt.
Swift (Score:3, Insightful)
Well, that was quick. A billionaire CEO of a major corporation, who can influence untold amounts of money in stocks, can get a settlement within days of the public announcement that he would be sued. It amounts to a slap on the wrist.
I wonder how many years an ordinary person would be dragged through the mud over a shady business deal amounting to a few thousand. They'd probably have to register for a sex offender list, just to be on the safe side.
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Actually pretty typical - IF you capitulate. Most people accused of a crime can settle it with a single conversation. The Prosecutor looks things over, makes an offer and if you take, you are done.
It only gets dragged on for years if you try to fight it in court.
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It amounts to a slap on the wrist.
It would amount to a slap on the wrist even if it was just a small CEO at a small public company. What he did was the business equivalent of speeding.
can get a settlement within days of the public announcement that he would be sued.
Are you impressed with the speed of this happening? This was quite a small case, everyone involved had high paid lawyers, and the only contention was a bit of wording in the settlement. I wouldn't expect this kind of thing to drag out unless contested in court. Heck this was incredibly slow by standards of many cases (e.g. the RIAA which just sends out settlem
Aww (Score:5, Funny)
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I thought about the same: How to make sctock price scam legaly without getting into trouble with SEC? Make SEC do it for you! Let them kick you out, you and your allies buy shares for 150 instead 420+, and once Tesla is private, come back through the front door...
Dreamer (Score:2)
Move to Ireland (Score:2)
Re:I see..., (Score:4, Insightful)
If you don't like the rules stay private.
Musk is still CEO (Score:2, Insightful)
He will still be running the company and he may yet take it private. This is a victory for Musk. The SEC backed down from insisting on removing his as CEO.
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The SEC didn't back down. Elon Musk changed his mind and decided to take the deal.
In the original deal, Musk wouldn't have had to give up the CEO position either. He just had to give up the chairman position for 2 years (now 3 years), pay a fine, and appoint 2 new independent directors.
From Tesla's Musk pulled the plug on a settlement with the SEC at the last minute [cnbc.com]:
Tesla and the Securities and Exchange Commission were close to a no-guilt settlement but Elon Musk pulled out at the last minute, sources told
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It's an open question as to what changed in the agreement, since we don't have the original text. Previous reports had stated that the original text included the word "fraud", which Musk was strongly against, feeling that he did nothing wrong. But we really don't know without being able to compare the two.
Re:Musk is still CEO (Score:5, Informative)
Ed, correction: the original version purportedly referred to "misleading investors", not "fraud", and that was the language that Musk objected to..
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But the situation is the same. He settled a legal complaint of securities fraud, neither admitting nor denying the charge.
The difference from Thursday is that he doubled the fine, increased the amount of required oversight, got an additional year of chairmanship ban, and appeared to the world even more mercurial (reject a deal Thursday, causing a bad news event Thurs afternoon, and then proceed take a worse deal Saturday).
Re:Musk is still CEO (Score:4, Interesting)
The SEC backed down from insisting on removing his as CEO.
But did force his removal as chairman and the appointment of two independent directors, which probably now makes it a realistic possibility that the board itself could remove him as CEO if he doesn't get his act together.
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He will still be running the company and he may yet take it private. This is a victory for Musk. The SEC backed down from insisting on removing his as CEO.
Removing him as CEO was the remedy if he went to trial.
But compared to reports of the settlement he turned down a couple days ago this new deal seem to ban him from chairman for an extra year and adds a new independent committee that can regulate his communications.
If true turning down the first deal was a pretty significant misstep by Musk.
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The reports were that the original agreement also included the two independent directors.
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The reports were that the original agreement also included the two independent directors.
The two independent directors on the board, yes. But not the new committee of independent directors with the power to oversee his communications.
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Very well might have. We only have the most basic outlines of the original detail leaked out.
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That will do him a lot of good when the new chairman and board fire him as CEO. While unlikely its a possibility now whereas when he was chairman it wasn't.
He's gone from running the show with impunity to serving at the pleasure of the board.
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The board answers directly to the shareholders, who can remove any or all of the board.
If Musk can convince enough of the shareholders to vote to take the company private, then the board becomes irrelevant.
As a long I am increasing my stake in this company in the hopes that it does go private. Tesla is way ahead of their competition, silly tweets or not.
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Directors are subject to shareholders. And shareholders overwhelmingly want Musk as CEO, as was shown in the last shareholder meeting.
Shareholders also overwhelmingly opposed adding two directors at the last shareholder meeting, but of course, the SEC has no problem with forcing on the company things that its shareholders don't want. As well as filling their previous complaint with language that could have been taken straight from Jim Chanos.
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Oh please. The vast majority if share holders are funds who could not care less about the Cult of Musk. As soon as they believe the stock price is better without him he's gone.
And the directors could all wake up tomorrow and fire him if they so choose and there isn't a thing that could be done until they themselves are replaced by the shareholders if they so choose. There doesn't have to be any vote to do it.
Re: Musk is still CEO (Score:4, Informative)
Not directors. Shareholders voted down the resolution to add more directors. 85% of shares voted against the proposal.
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I'm a shareholder.
I hereby volunteer to become one of the additional two directors.
I promise to miss all meetings and never vote on anything I'm not legally obliged to vote on (in which case I'll abstain), so that my addition to the board makes no difference whatsoever.
I'll even do it for free (necessary expenses paid, please, but I want nothing for my own pocket).
If the SEC gives you the finger, give it two fingers back. I'm sure it will be at most minutes until someone else adds "me too" to this comment,
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You'd have a fiduciary duty to the shareholders as a whole to exercise reasonable care --- e.g. missing substantial numbers of meetings and failing to vet proposals and exercise due diligence could expose you to significant liability.
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Tesla doesn't need more stock roller coaster games right now, it needs management.
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The company is successful this far, and not significantly interfering with its operation is the best kind of reasonable care that I can exercise. Since the position is an elected position and my strategy is communicated well in advance of the election, by voting for me shareholders express their explicit desire for me to act in the way that I outlined.
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You have a fiduciary duty to all the shareholders. Even the ones that didn't vote for you. That is, consent of shareholders "isn't enough".
There's an ample body of law on directors' duty of care: directors are required to make a good faith effort to gather all information related to a decision and to make a careful decision on all matters. Absentee directors have been found liable many, many times.
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In such case I will make careful decisions to not interfere with the so far successful course the company has taken.
The law is gameable. In fact, it is designed to be gameable. The vast majority of the law is written by lawyers, whose profession is to game the system. An ideal law would work without lawyers in all but the most obscure and difficult cases.
Re:Musk is still CEO (Score:4, Insightful)
SEC has no problem with forcing on the company things that its shareholders don't want.
The whole point of any regulatory body is to protect people from their "own stupidity".
Now, you might argue that the bureaucrats at the SEC don't know what's better for Tesla than its shareholders, but those bureaucrats would strongly disagree and they have the power to punish anybody who disagrees with their omniscience.
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The whole point of any regulatory body is to protect people from their "own stupidity".
No, the primary purpose of a regulatory body is to protect people from other people's stupidity, and sometimes malice.
The SEC exists to protect investors from businesses that want to lie their way into profitability. The EPA exists to protect people from toxic waste produced by factories. The FDA exists to protect people from being sold relabeled rat meat. And the DMV protects good drivers from people who really shouldn't be driving.
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Victory? This was the deal they offered him and which he rejected. He didn't want it, he wanted to fight them.
This is Musk admitting defeat and that he can't win in court, so taking the deal offered.
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No. It's similar to the original deal, but it doubles the fine and further regulates his communications going forward.
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Thanks, that's important to note.
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He got whacked for being bad, and took it well. The penalty is measured and appropriate. He will watch his mouth in future. Tesla goes on building great cars under his leadership. Everybody a winner.
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I'm curious as to what the requirements for "independence" for the new chairman will be. Because a lot of Tesla shareholders will probably want Kimbal Musk for chairman. He's the most obvious choice.
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This does seem like a very good outcome for Tesla as a whole, as one way or another the shareholders will choose the new chairman. Musk has clearly been stretched thin of late; far better to let someone else do the desperate fundraising while Elon can now spend only 80 hours a week running Tesla.
Did you pick up some more TSLA Friday? I'm feeling good about my new 100 shares.
Share strategy (Score:3)
So you bought 100 shares at 265. Are you hoping they'll rise in the short term and then blow them off, or are you looking for a long term capital gain? I assume you aren't in it for dividends. What is your exit strategy?
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Betting that TSLA would make its production numbers for Q3 and Q4. Or if it goes too high, realtive to the past couple years, any time I'll get out. Q3 numbers turned out well.
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Betting that TSLA would make its production numbers for Q3 and Q4. Or if it goes too high, realtive to the past couple years, any time I'll get out. Q3 numbers turned out well.
For Q3 and Q4, profit / loss numbers will matter a lot more than production.
Q1 / Q2 2019 will be very interesting as the waiting list for people who'll buy the long range / performance versions should have been exhausted and most will be hoping for the promised $35k model.
If that isn't ready for the domestic market and Tesla isn't ready to ship overseas or to right-hand drive markets, deliveries may tumble in H1 2019
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IMO, profit numbers aren't interesting until Tesla is consistently producing "real car company" numbers for the Model 3. If it doesn't, for lack of ability or lack of demand, it's toast (though I think it will). As you say, how will their sales beonce they're past the pre-orders.
Next year, the interesting question will be "at volume, how profitable is Tesla before debt service". That will determine whether the company will survive. If they're able to get on top of fixed costs, but not keep up with debt
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Only 47 shares. It didn't get nearly as low as I was hoping :( I guess the market cares more about whether Musk smokes (not really) pot and whether one (of dozens) of the company's execs leaves for a different job than they do about the SEC.
Oh well, Monday will be fun. Honestly, as annoyed as I am with the SEC basically overriding shareholders and working to the benefits of the shorts - who they never investigate, despite a laundry list of complaints - there are some positives. I think institutional inv
Re: Musk is still CEO (Score:2)
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The only logical choice for Chairman would be Takeshi Kaga.
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Okay, that would be hilarious ;) And they need that calm voiceover guy to translate everything that he says on the conference calls ;)
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It's not about a tweet, it's about manipulating stock prices with false information.
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It's not about a tweet, it's about manipulating stock prices with false information.
... on Twitter.
I agree with GPP: any information on social media is automatically assumed to be a lie that no reasonable person would believe.
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With Musks twitter account being an official, registered, Tesla communication channel?
Will you soon pop up claiming that press conferences from Tesla should automatically be assumed to be lies?
I think you are confused. Severely so.
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Yes. Social media: all lies. Official, presidential, or otherwise, still automatically lies.
Re:I see..., (Score:5, Insightful)
Legally he isn't allowed to talk about taking the company private to anyone without a need to know about the transaction. If he said the same thing at a party instead of tweeting it, same result.
30 years ago this might have been OK, but now it's market moving info and you arrange the transaction in secret and announce it once it's done.
Re:I see..., (Score:5, Insightful)
30 years ago this might have been OK, but now it's market moving info and you arrange the transaction in secret and announce it once it's done.
It's great how the SEC is there to keep shareholders of public companies in the dark about what's going on in the companies, especially when they all have equal access to that information. I know, I know, the institutional investors need to have priority access so the poor schmucks at retail don't stand a chance.
Elon got governmented good and hard. A shame; he can get back to productive private-sector business now, though, so there's a silver lining. But we all learned a few lessons on this one.
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How do you do this if you want to keep your large shareholders in the game? They would be forced to halt trading in the stock once they have the information, which is untenable for a large fund.
He should have had better advice prior to doing anything, but that does get tricky... especially when you run things kind of by the seat of your pants...
Re: I see..., (Score:2, Insightful)
Musk did not create Tesla.
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The company he created is more important than it's creator. So, the government can arbitrarily tell him that he must step down? I'd be very pissed.
This smells like the government's destruction of Tucker Motors on behalf of the Big Three.
"Elon! The cars...you made them too good!"
Strat
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The company he created is more important than it's creator.
He did not create Tesla, he bought into it.
Re:Double standard (Score:5, Insightful)
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I don't think RMS is a SJW dictator. His politics are left, but considering that he was attacked almost a decade ago by SJW's for a lame EMACS virgin joke that he sometimes told at speaking gigs, I seriously doubt he's all that sympathetic to their tactics and authoritarian speech codes.
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I don't think RMS is a SJW dictator. .... considering that he was attacked almost a decade ago by SJW's .... I seriously doubt he's all that sympathetic to their tactics and authoritarian speech codes.
That does not mean he is not a SJW. You are assuming that all SJWs exactly agree with each other. But RMS does enough to qualify as a SJW just by persisting in using "she" as a general personal pronoun; I usually stop reading his rants in irritation at that point - anyone can simply use "they" as a long-established non-gender pronoun if they wish.
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One manifestation of this is how people who support Donald Trump are reluctant to put stickers on their cars, signs on their homes, and even wear MAGA clothing because of multiple widespread documented cases of vandalism and violence. You see liberal and leftist campaign materials untouched around the nation because the opposition does not engage in these tactics and yet they claim the opposition are fascists.
These tactics are similar to those used by the early Nazi party
MAGA is a far right wing political movement. Its opponents include moderate Republicans as well as Democrats and others. The majority of Americans disagree with MAGA policies related to taxation, health care, immigration, foreign trade and political isolationism.
The critical thing to realize is that the people who disagree with MAGA are typical Americans. They're not extremists. They're not the mythical leftists that extremists paint as the boogeyman (seriously, does *anyone* in their right mind see the USA
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Then feel free to do business somewhere else.
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the SEC can arbitrarily fine someone 20 million dollars after an admission of no wrong doing
It's a settlement. Musk and Tesla agree to pay 20 mil. There is no admission of wrongdoing (which could trigger a number of other legal provisions). And Tesla agrees to do some BOD reorganization. The alternative is to fight it, have a court find Musk guilty, impose a fine and be subject to much more damaging penalties. It's primarily the guilty verdict that they want to avoid.
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He can still go to jail. The SEC could stop him from leading any company for a long time and could give high fines, not give him jail time. Criminal investigations are done elsewhere and this deal doesn't affect that.
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The people who have the job of going after the people who run public companies and the people who have the job of going after unwanted Mexicans are totally different. Its very much possible for the US government to be doing both things at once.
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Yeah, if he's willing to risk only his entire fortune. Because other investors are really on the lookout to invest with a petulant child who will take his ball and go home if things don't go his way.
Tesla and BitCoin stories are fun to watch the complete idiots on finance and economics come out of the woordwork.
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That's one interpretation.
The other is: Musk lied to the world about the potential of investment in his company.
You can't do that. It's illegal. You can hype, but you can't lie. That's why it's always "we believe...", "we forecast...", "we predict...", "we want to be..."
He's not being held to any rules different to everybody else. And it has little to do with gullibility of investors. Hell, people would have profited from jumping on the hype train and getting out before other people realised what they