Science

Opinion: Elon Musk shows in ‘safe finance’ lawsuit that he doesn’t live in the real world

A world of upside-down contrasts reigns in San Francisco in recent days as one of the world’s richest men, Elon Musk, enters a federal courtroom with four security officers to present himself as the protector of the average retail investor who has never lost money. for his investors.

Tesla Inc. tsla,
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The CEO is in San Francisco to defend against a shareholder lawsuit stemming from his 2018 “secured funding” tweet, when he said he had struck a deal to privatize the electric car maker that was far from being truly secure. During his three appearances in court — a short 30 minutes on Friday, a few hours on Monday, and just over three hours on Tuesday — Musk managed to make a number of exaggerations, under oath, spreading the truth about how the world of high finance thinks. works, while claiming that he was trying to save Tesla from a Wall Street shark short sale.

The billionaire CEO played on the “Wall Street swims with the sharks” mentality of small individual investors by describing his disdain for short sellers of Tesla shares. When asked about his desire to take the electric car company private, Musk cited short selling as an incentive to try to take Tesla private.

“I think short selling should be made illegal,” he said Friday. “It’s a way… for bad people to steal money from small investors.”

Musk seems to be trying to show that his intention in 2018 — a brutal year for Tesla — was to try and make it private to ease some of the pressure from sellers “who wanted Tesla to fail” and raise expectations . from Wall Street. He has often emphasized that he prefers retail investors over Wall Street and does not want to exclude them from messages that large investors can receive.

Since 2018: If Elon can’t prove the funding was safe, he should leave

Musk believes that in this upside-down world, investors financing a takeover do not need to see more financial data than is publicly available or perform any other due diligence on a company than they are about to privatize. In his testimony, Musk often reiterated that he believed the funding was provided by the Saudi Public Investment Fund (PIF), which bought 5% of Tesla shares on the open market to demonstrate its interest in the company, without any written agreement. .

Despite the large gap between 5% and 100%, Musk believed that a verbal agreement was enough for a full billion-dollar privatization deal.

“Privatizing a company is different from buying shares on the open market,” said lawyer Nicholas Porritt for the plaintiffs. “It’s not much different,” Musk said. “Is not?” Porrit asked. “I don’t think so,” Musk replied.

Even after the Securities and Exchange Commission settled allegations of fraud in connection with these tweets in September 2018, Musk still refuses to admit that the funding was unsecured and that he made a mistake. On Monday, Musk said his infamous “secured funding” tweet to acquire Tesla at $420 a share was no joke, that he would also sell his SpaceX shares to fund the deal, and that one of the big Saudi investors who, he said he promised to finance Tesla’s privatization from one of the world’s largest sovereign wealth funds, “refused” and “covered his ass” when he asked Musk for more financial information about Tesla so their teams could meet and discuss the deal.

But is it possible to believe that a man who says that he probably “raised more money than anyone else in history” could have such a naive idea of ​​​​big finance? In Musk’s world, people can just make an offer for a house and that bank will show up later once your offer has been accepted.

“It’s like buying a house,” Musk said in response to a question from the plaintiff’s lawyer. “FIP [the Saudi Public Investment Fund] it’s like the bank says it will back you up. There is more documentation after you agree to buy a house, but you do it anyway. When Porritt pointed out that when buying a house, he had to get a written commitment from the bank before even making an offer, Musk said things were different with the sovereign wealth fund.

Referring to the fund’s 5% stake in Tesla, Musk said he advised them to buy shares on the open market to show they were serious about working together in the future.

“There were no signed documents, no price discussions, they moved on,” Musk said. “Therefore, it was reasonable to expect them to behave in the same way as in the past.”

In the alternate universe of Musk’s ARK Invest, which manages about $16 billion worth of assets in several ETFs such as the ARK Innovation Fund ARKK,
-1.58%,
is a substitute for small investors. Musk named ARK chief investment officer Cathy Wood among the most influential people who didn’t want Tesla to go private because her fund couldn’t participate, and said she “represents small investors” when Porritt asked him if he was receiving any -or comments from retail investors. by deal.

In reality, the main plaintiff is a small investor. Investor Glen Littleton detailed in a keynote last week how he used options trading on both sides of Tesla to hedge his investment in a company he truly believed in. Littleton described how he felt caught by that company’s CEO when he lost money trying to change his position for a private deal that Musk was sure would go through.

“It was going to pretty much wipe me out,” he testified.

Musk claims to represent that type of investor: “I care a lot about retail investors, they are our most committed and committed investors,” he said, even as he was sued by a class of shareholders who lost their investment due to Musk’s shares. . He attempted to add during his testimony, but was barred from another statement about his distaste for group action.

Asked by a lawyer for the plaintiffs on Tuesday if he thinks his tweets make investors lose money or if he feels regret, Musk said: “I never wanted investors to lose money. money. If he lost money because of this tweet, I would be sad, but the public market investors… in general, they did very well.

No more Teresa: It’s time for Elon Musk to start telling the truth about autonomous driving

Musk made some of his comments while looking directly at the nine jurors. Sometimes stuttering, sometimes speaking slowly, Musk also apologized on Monday for not looking his best due to not sleeping well. Dressed in a dark suit, Musk also complained of terrible back pain after several hours at the helm.

But he also sometimes acted aggressively with the plaintiffs’ lawyer and managed to make many self-serving statements of his own without being asked. Observers and jurors sat at a social distance, wearing masks, which made it difficult to read the reaction on the faces of the jurors.

See also: Why a well-known Tesla investor wants Elon Musk to include him on the board of directors

It’s far more reasonable to expect one of the world’s most successful businessmen to demand more proof than “well, it worked last time” before telling thousands of his investors that the deal is almost done. And those who had an idea of ​​how these deals generally worked showed just how close Musk was.

Before Musk spoke Friday afternoon, Harvard University professor Guhan Subramanian testified that Musk’s tweets and his alleged takeover of Tesla were the “extreme exception” to a number of leveraged buyouts he studied in his database. including $40 billion. acquisition of Dell Inc. dell,
-0.29%.
Subramanian called Musk’s Twitter feed “blatant corporate governance” and said there were a number of well-planned moves typical of such transactions, and Musk’s actions were incomplete, inconsistent and illusory.

But that’s to be expected from Musk, who managed to sum up this opinion of himself after being called by his lawyer as potentially the greatest fundraiser of all time:

“The reason I can raise money is because investors trust me to be honest and responsible with their money,” Musk said.

How many investors still believe this after the “secured funding” tweet and everything that followed, right down to the sale of Tesla shares to them to fund the acquisition of Twitter and the subsequent drop in Tesla shares in the worst month, quarter and year on record? ? It may be impossible to know, but we’ll soon find out if the jury believed everything he said about the world according to Elon Musk.

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