Today in San Francisco, Elon Musk went on trial because he has been sued by some Tesla shareholders over this Tweet he sent out on August 7, 2017.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
This Tweet that he was planning to take Tesla private by purchasing all the shares at $420 and that he had secured the funding to do so caused the stock price to rise sharply but the deal did not materialize and the stock price plunged a week later when it appeared that he did not have the funding deal.
In court today, Musk was accused of lying about having secured funding. The judge overseeing this new trial had already ruled that Musk’s Tweet was false and Musk has already been fined $20 million by the Securities and Exchange Commission for that Tweet but this new lawsuit has been brought by shareholders who argued that he was a reckless liar who had deceived them and they are seeking billions in damages.
A jury of nine, seated on Tuesday, will decide whether the tweets artificially inflated Tesla’s share price by playing up the status of funding for the deal, and if so, by how much.
During Tuesday’s jury selection, some potential jurors described the chief executive, who has gained a reputation for the unpredictable, as “narcissistic”, “unpredictable” and “a little off his rocker”.
…Musk is on the witness list for both sides of the case. An attorney for the plaintiffs told the Associated Press he would try to call Musk to the stand when the trial resumes on Friday after some other scheduled witnesses or, if time doesn’t allow, on Monday.
Not being that familiar with the workings of the stock market, I looked at what the Tesla stock price was on August 7, 2018.
This graph seems to suggest that the share price at that time was around $20. While such stock buybacks do promise prices that are a little higher than current market values in order to induce people to sell, a factor of 20 increase was preposterous and I could not make sense of it. According to the graph, it did not start its dramatic rise until 2020, reaching the peak price of $407 only in November 2021.
Then I came across this Tweet that said that the price on that date was actually $368.
Only $52 away pic.twitter.com/1ex9XrvflL
— Rani Molla (@ranimolla) August 7, 2018
Offering a premium of $52 makes sense but this means there is something wrong with the other graph. Can anyone who is more familiar than I am with the workings of the stock market tell me what might be going on? Why is the five-year graph so wrong?
The only puzzling thing to me, is that he didn’t claim the stock buy was going to be $420.69…
It looks like stock splits, a quick search only shows Tesla with one class of stock. If you have 1000 shares of stock priced at $10 a share, when the company splits 2-1 you have 2000 shares that should be worth $5 a share. To keep simple chart prices comparable the price given before the split date will be cut in half. Since 2018 Tesla has split twice for a total of 15-1 split. Dividing the tweet price by 15 is close, which makes sense because the tweet price isn’t the end of day price.
Tesla’s current share prices are, in all likelihood, hugely inflated by all the hype and “mystique” generated by QElon. Given all the scandals surrounding Tesla’s “self-driving” cars, their stock should be tanking. Maybe this “taking Tesla private” talk is just another QElon distraction…
As @2 says, the price discrepancy on the graph is down to stock splits in the meantime.
However the supposed offer wasn’t just the usual buyout premium, $420 is a weed reference and well used/understood by the target Elon fanbase -- that is, the actual number was intended and would have been understood as at least partially a joke/exaggeration.
Stock split history for Tesla (TSLA)
Tesla stock (symbol: TSLA) underwent a total of 2 stock splits.
The most recent stock split occured on August 25th, 2022.
One TSLA share bought prior to August 31st, 2020 would equal to 15 TSLA shares today.
Stock split list
Date Split Multiple Cumulative multiple
2022-08-25 3:1 x3 x15
2020-08-31 5:1 x5 x5
To keep stock price charts consistent, historical prices are shown as if all stock splits happened prior to the IPO. This does cause confusion when comparing a stock price chart with old news reports. In Tesla’s case, discussions of its stock price prior to 08/31/2020 have to be divided by 15, OR prices from charts have to be multiplied by 15.
@2,4,5,6,
Thanks for the explanation of stock splits in explaining the discrepancy. If I understand it correctly, his offer of $420 has to be also divided by 15 (=$28) to make it comparable with the historical chart.
My ignorance of such things shows why I should steer well clear of any direct involvement with the stock market …
@7
Well, it’s really equivalent to handing someone a $20 bill and getting four $5 bills in return, but I have had many a fruitless discussion with people trying to get them to understand that.
Stock splits had some utility back in the days when stock broker commissions were very high. When I started working in Silicon Valley in the early 80s, it might cost $150 in commissions to buy a “lot” (100 shares) of a $20 stock. That was bad enough, but commissions would slide somewhat based on on the share price AND there was a surcharge for buying less than a full lot. So, that $2000 investment (100 shares @ $ 20/share) might cost you $250 in commissions if it was 25 shares @ $80/share.
Today, stock splits are a mostly meaningless way for a corporation to get people excited.
Sorry Mano, I didn’t directly answer your question. Yes, divide Musk’s offer by 15 to compare it to the chart.
@7
Yup, *if* $420 were a serious figure, which as I said, it isn’t *quite*. But figure that if a buyout did happen, it would have been somewhere in that region. (Premiums of 10-20% at time of announcement aren’t unusual. Usually such an announcement will push up the price as people try to arbitrage the difference, and if the deal falls through the price will drop back, hence the SEC taking an interest in spurious announcements as that could be construed as manipulation.)
To a certain extent companies get to choose their stock price (by choosing the number of shares to float: roughly, stock price = estimated company value / number of shares) as an act of marketing their stock to particular classes of potential investors. If you choose an initial value too high, or the company is doing well and the price starts to rise too high, it gets to the point where only really big investors can afford to buy it any more and the smaller investors drop out. You might have reasons for wanting that, or you might prefer to be accessible to a wider pool of investors so you split the stock (each old share is exchanged for N new shares work 1/Nth the price). But then doing a split can be seen as a statement of confidence in the company as well as entice a new range of investors to buy so can cause an additional short term increase in price.
On the other hand choosing a value too low, or letting the price fall too low can make you look like a penny stock. The big investors will shun you and everything gets a bit grubby. Furthermore the prestige exchanges have minimum share price levels to maintain a listing -- fall below that and they start prodding you to do something about it, and eventually might de-list from the exchange altogether you which can make raising new cash much harder. So to fix that you can do a reverse-split (N old shares are exchanged for 1 share worth N times as much). That is often seen as an admission of weakness, so can result in an immediate price drop after the reverse-split.
It doesn’t matter what he “intended.” A reasonable person (i.e., not a Musk fanboy) would assume he meant it. And the investors took it seriously enough to affect the stock price. (Cf. “intent is not magic.”) That makes it fraud.
This is why in any sensible company, people working for the company — especially people in upper management — are not allowed to say anything about the company without first running it past the legal department. Even if the person making the statement doesn’t really know anything about the company’s plans, people outside might assume they do.
(Of course, “sensible company” evidently excludes any business owned by Musk.)
My post #6 was less clear than it could have been. Let me fix the last sentence:
In Tesla’s case, discussions of its stock price prior to 08/31/2020 have to be divided by 15, OR prices from CURRENT charts have to be multiplied by 15.
@11
Actually, it *does* matter what he intended. For it to be literally the crime of fraud, he had to have intended some quite specific things. Without that it is very likely a violation of several different securities regulations, some of them potentially still criminal though he would probably get a deal from the SEC to keep it civil. Like last time. But fraud it ain’t.
Here’s the thing: I think Elon’s life is so far out of regular reality that he no longer cares about the effects of what he says. He doesn’t really care about Tesla’s stock price. Up or down, it’s not going to materially affect him, it’s His Status Chit And He Can Fuck About With It However He Likes. Everything, and I mean *everything* he does is just some fun little game.
His escape has been so complete that he can choose not to be constrained by corporate counsel. Most execs don’t have the personal power for that and could be removed from having any effect for not obeying. Bezos does, but (and I think Bezos is the worse person) at least appears to have chosen of his own free will to remain more grounded.
That’s going to continue until someone with real teeth proves to him that he can indeed have limits imposed on him. I’m not holding my breath.
@xohjoh2n
Musk intended to deceive his followers on Twitter (and by extension people who read his coverage via the media) -- He may not have intended that his followers sell their options or whatever the claimants claim but as far as I remember it meets the criteria of fraud that the Perpetrator intended to deceive , the victim was indeed deceived by it , the victim suffered damages (but IANAL). I don’t think its necessary that the intention has to be the specific damage that occurred was intended, only that intentional deception occurred.
@14:
And I think immediately you’re going to run into trouble there.
Intended to deceive? Or share an in-joke? One that is pretty blatant and you can point to a pattern of behaviour to support the case that it should have been obvious he wasn’t *entirely* on the level there.
Or is it even provably deceptive? Perhaps he got drunk the night before with a VC mate and raised the idea and was told “sure, great idea, let’s go for it”. Only after the tweet did they come back and say they hadn’t intended that as a promise to bankroll him. The trouble is we don’t know the technical details behind the tweet, a lot of his detractors assume it was entirely made up and there never was any funding, but I don’t think he’d need to dig up much to make a case that he genuinely believed it was at least possible at the time.
(Of course “recklessness as to the truth” is sometimes sufficient under some definitions of fraud, but it all depends…)
Motive is also going to be deeply tricky there given his long established pattern of tweeting the price up and down with seemingly no regard to his personal fortune. Not always necessary, but definitely nice to have if your a prosecutor trying to persuade a jury. (I wouldn’t want to be the one arguing “he may have only been rambling like an idiot, but we think that ought to be illegal”.)
No, I think you’re on much safer grounds under less emotive and harder to understand technical regulations. I can’t imagine there aren’t a whole slate of them the SEC could get him under if they were motivated to do so.
(At this point I looked up and read the Guardian article for the first time. Sounds like what I said above is basically the defence case: that funding was indeed available, or reasonably believed to be available. If true, that shouldn’t be hard to prove. Shareholder actions are also extremely common whenever there’s any change in stock price and they rarely go anywhere. Actually, I’m having a hard time figuring out what kind of bullish play the plaintiff was making to lose 75% of value at a time when the stock would have been going up. Looking at the broader chart it didn’t even move that wildly from the 7-17th -- within 3 or months either side it traded a wider range.)
Showing intent might be necessary if this were a criminal trial (though I don’t think showing mens rea in this case is as hard as you think.)
This is a civil trial, and I’m guessing it’s a tort case (not that I’m a lawyer.) It’s enough that he acted negligently; he knew, or should have known, that a tweet like that would affect the market price (that’s why the fine.)
@ 4 xohjoh2n
https://en.m.wikipedia.org/wiki/420_(cannabis_culture)
Thanks for that. You learn something new every day. 🙂
@xohjoh2n
Sure its hard to prove intent , except in this case the Judge has already ruled on that
Edward Chen, the US district judge overseeing the trial, has ruled that Musk’s statements about the status of the deal were false and Musk made them recklessly.
https://www.theguardian.com/technology/2023/jan/18/elon-musk-tesla-trial-opening-argument-shareholders
Besides look at Musk’s personality -- irrespective of whats true -. Would he rather lose some money and say see what a super -smart manipulator I am and whats a few billion when I have so many ? OR yeah I was drunk I had no idea what I was doing , i didnt intend to deceive.