An open letter to the SEC about Tesla and prosecutorial overreach
Preface: I know this will have no effect. But since Musk’s hearing for contempt of court is tomorrow, I figured I would post my opinion anyways. This letter is intended to publicize frustration around the SEC’s dealings with Tesla and similar situations with questionable merit. The goal is not to dabble in legal minutae, but to highlight the substance of the case overall, including the (in my opinion) prosecutorial overreach involved and potential real-world consequences outside of what is a largely contrived legal situation. Open to hearing intelligent comments and criticism on the viewpoint this letter reflects.
Jay Clayton, Chairman of the SEC
Jina L. Choi, Regional Director of Enforcement, SEC San Francisco Head
Cheryl Crumpton, Supervisory Assistant Chief
E. Barrett Atwood, Trial Counsel
Jay, Jina, Cheryl, Barrett,
The SEC’s mission as publicly stated is to protect the interests of investors. In fact, the biography of Jay Clayton on the SEC’s website states: “Since joining the Commission, Chairman Clayton has focused on the long-term interests of America’s retail investors, a perspective he shares with the SEC staff.”
In the case of Tesla, you have failed to live up to this ideal, and I believe the consequences may be disastrous — for everyone.
Let me get one thing out of the way:
I am a very small retail TSLA shareholder, but it represents my largest individual stock holding, primarily in my retirement account. I am not an Elon Musk fanboy. In fact, I denounce his brazen disrespect for the SEC. I also don’t think he should have tweeted many of the things he tweeted, including the infamous take-private tweet.
That said, none of the tweets in question ever affected my decision to invest in the company, and no tweets from Musk caused me harm in any way. What did cause me harm, and continues to cause me harm, are the SEC actions against the company.
Don’t get me wrong, I think the SEC should have stepped in and fined Musk (although I disagree with fining Tesla — that just hurt us shareholders) for the take-private tweet. He should have worded any disclosures around take-private talks much more carefully and gone through Tesla legal counsel to issue a statement, rather than tweeting. There are many other tweets and comments that Musk should not have made, both regarding Tesla and otherwise.
Additionally, I don’t appreciate exaggerated claims that Musk makes about products, about targets, and about timelines- however I have learned to discount them. Frankly, what I have come to understand is that that is what it takes — to motivate people (if you have separate production schedules for the public, internally, and for suppliers, eventually word will get around and it will default to the most laid-back schedule, and that is something the planet cannot afford, let alone Tesla).
However, as an investor in Tesla, I let all of the above slide, because (a) there are many, many worse things at many other public companies that go unexamined, unprosecuted and unaddressed (b) Musk and Tesla eventually deliver the majority of that they promise — delays are the only complaints I would have, and by any reasonable (non-Musk) timeline, Tesla is extremely fast at delivering.
Now, to the substance of the SEC actions:
The argument in question is a technical legal and procedural one — and is represented within the two tweets, and even within these, it comes down to a few characters. I summarize below:
1. Take-private tweet: Whether “Funding Secured” is an accurate statement (arguably it may not be. However, when private/institutional investors know something I do not, that is an unfair playing field. I would rather learn about an event like this ASAP — from the company, and not from the Financial Times. The FT ran a story about the Saudi Fund acquiring a 5% stake, and given the amount of information that leaks in such transactions I, as a retail investor appreciated knowing any detail about such an event ASAP. Intentions probably had some good in them, but it was definitely poorly executed by Musk.) The US is a substance over form legal regime, and you should try to not forget this when committing prosecutorial overreach.
2. Production tweet: Whether “500,000” is an accurate projection (arguably it may not be, although it was previously disclosed as the run rate, and every Tesla investor who intelligently invests in the company understood this to be the run rate even prior to clarification). The SEC takes issue with the fact that the settlement was not fully adhered to, in its opinion, but fundamentally, the issue is around these tweets and their aftermath…everything else is procedural and vindictive. (By the way, in my frank opinion as an outside party who is hopefully not as immature as either one involved — the SEC has a thin skin and is retaliating because Musk goaded them on twitter/TV like a child).
I understand you need to follow up on your earlier prosecution/settlement; the SEC cannot be seen as a toothless tiger. To that I would say:
1. Ok — fine Musk quickly and move on — stop dragging it out — it is terrible for investors and the company. It’s a tweet. It was after hours. It was corrected within a few hours. I, as a retail investor, did not even need the correction and understood it to be run-rate based on previously disclosed information.
2. Stop fining Tesla shareholders.
3. You also cannot afford to be seen as an unreasonable sycophant — this sort of useless prosecution is exactly why companies choose not to go public, and you are killing the investing climate for the retail investor. As a tax-paying citizen, this makes me incredibly angry.
4. Stop being so petty. Seriously, move on from TSLA, until and unless they do something that’s really a bad thing. It’s not a good look on you.
As someone who has worked in the financial industry, as an investor in a variety of equities and as someone who has primary and secondary knowledge of what has transpired at several hedge funds and financial institutions — many of which went unexamined by the SEC, I can tell you this case against Tesla and Elon Musk is on a relative basis, meritless, and not something you should be spending your time on, let alone my tax dollars on. (Seriously — stop wasting my tax dollars).
Moving on to the big picture:
Climate change is real. 39% of the world’s greenhouse emissions come from Transportation and Electricity/Heat production according to the EPA. Tesla is the only major company pushing forward viable alternative solutions to the petro-industrial complex (which I understand several of you have ties to, but I won’t go there), at any sort of scale. Tesla is still tiny, and if it fails, companies like Volkswagen will take a breather on the whole “electric cars thing”, and possibly revert back to cheating on emissions tests for their Diesel cars and thereby destroying the planet. If you remove Elon Musk from Tesla or otherwise inhibit his involvement/ability to lead the company, you will likely destroy Tesla, or at minimum slow it down such that it is an inconsequential company going forward. Few people can successfully challenge the petro-industrial complex.
There are other ways to address this if you want to avoid losing face — fine Musk, and make it more this time (but again, stop fining Tesla shareholders). Make him to hire a COO or other leadership.
(Also — while you’re at it — you should perhaps help clean up some other industrial companies…GE comes to mind; where was the SEC for the past decade when retail investors actually needed help?) If you think your actions are not harmful to the company and penalizing Musk only serves as an example to other entrepreneurs, you would be wrong. Whether justified or not, I take the SEC’s involvement with Preston Tucker’s car company 70 years ago as a note of caution about what the SEC can do.
Jay, Jina, Cheryl, and Barrett: I don’t need this kind of help or protection when investing in Tesla. If you inhibit Tesla’s ability to progress smoothly, you are quite literally — and I mean this in no uncertain terms, on the path to destroying what is likely the last hope for this planet. And over what? A couple of tweets? Is the habitability of the planet really worth the sanctity of your settlement?
I won’t fault you for understanding law more than you do science, but the stakes are indeed that high. As a human, I fully appreciate it is hard for humans to look beyond their day to day, but in this case, it is your moral obligation to take scientific consequences into consideration. Taking down Tesla is not something you want to be remembered for.
History will not judge you kindly.
PS — Elon, stop doing stupid things like goading the SEC on twitter and 60 minutes.