Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[TNEVol]

From the settlement agreement:

“Defendant undertakes to comply with all mandatory procedures implemented by Tesla, Inc. (the “Company”) regarding (i) the oversight of communications relating to the Company made in any format, including, but not limited to, posts on social media (e.g., Twitter), the Company’s website (e.g., the Company’s blog), press releases, and investor calls, and (ii) the pre-approval of any such written communications that contain, or reasonably could contain, information material to the Company or its shareholders;”

The requirement for oversight isn't limited to just tweets, but all forms of communications. This would include verbal.

Now the SEC is saying it isn't up to Musk to decide what constitutes material information. This would mean Musk would have to seek guidance from the oversight committee every time he even wants to speak about Tesla with anyone in any way, to determine if his comments are material to Tesla and shareholders. There's no way the judge will agree with this interpretation.

Actually the argument is related to EMs compliance with "all procedures implemented by Tesla." Basically did he follow Tesla policies? Again materiality is an issues as well as what are Tesla policies which were well discussed in EMs brief.

 

[Singer3000]

Stunning
Tortured
Ridiculous
Brazen

Are emotive adjectives of this kind a normal component of written legal submissions of this type in the US?

Whatever, seems to me that the downside to Tesla’s fundamentals from this case is quite low at this point, even if Musk is held in contempt. There’s pretty good upside if he wins.

The stock on the other hand... I am resigned to it staying in a range bound doldrums until the scales are tipped by relentless cash generation. Good job I have a long time before I have to sell the stock to pay the kids college fees.

 

[Carl Raymond]

The SEC's main argument - which they make over, and over, and over again - is that the agreement doesn't state that Musk is allowed to determine what's material, so he can't.

It also doesn't say that he's allowed to breathe, so I guess he's not allowed to do that either.

As a reminder, here's what the SEC agreement actually says:

View attachment 387854

And here's what policy Tesla implemented:

View attachment 387853

Nothing... anywhere... about who must determine it. Yet the SEC is basically saying, "well, of course Musk can't", even though they never banned him from doing so.

I'm sorry, but contra proferentem, SEC.

Also, here's the worst part:

View attachment 387855

Except that Musk did not write - IN QUOTATIONS - "will make 500k". It was about 500k. The SEC is misquoting Musk, leaving out a critical adjective which hurts their argument, and doing so in quotation marks, as though it's a direct quote of Musk's tweet.

Are we seriously supposed to presume good faith here? I hope Musk's lawyer rips them to shreds over this.

Just in case anybody missed KRs case winning post, follow the above back, like it, love it. Vital that the SECs misquotation becomes widely known.

 

[Fact Checking]

That is NOT an Osborne Effect!!!! (Or did Tesla purchaseGMAudiBMWFordMBToyota when I wasn't looking?)

I think we here on TMC successfully broadened the Osborne Effect to across company boundaries: a future product causing deferred purchase behavior.

While the original Osborne PC did this with their own product line in a meme-worthy shoot your own foot fashion in an era when memes didn't exist yet, I think the broader cross-company usage is self-explanatory as well.

 

[NicoV]

I don't remember any more who posted this today, but here it is again:
EV registration statistics for The Netherlands
Netherlands numbers are much lower than Q3 and Q4, not sure why... If there is a bottleneck and gets solved quicly we could see a surge in deliveries.

Most likely a peak in Q3 and Q4 due to pulled in demand due to a less favorable tax regime as of 1/1/2019, followed by huge drop in demand for S/X. That tax regime is still reasonably favorable for Model 3 cars, so NL will shift to large numbers of Model 3

 

[Thekiwi]

In regards to the 30,000 cars to be delivered by the end of the quarter.

That is not that surprising considering total weekly production rate is probably somewhere over 7,500 cars (S/X/3), and considering how many thousands produced but not delivered are sitting on ships in transit.

 

[Tslynk67]

@ihors3 seems to be more active on $HEAR now, but someone could ask

Ha! I bought 375 of $HEAR play shares at $15.35 - it makes the short attacks on $TSLA look pathetic

 

[Fact Checking]

SEC requested no evidentiary hearing. Musk's attorneys can still request one. If neither want one (e.g. neither dispute the basic facts, just the interpretation), then the judge is free to decide the next step, which could be a ruling or further hearings to post followup questions to the two sides. If an evidentiary hearing is sought, then that would be the next step.

AFAIK.

The SEC is trying to avoid an evidentiary hearing, because their own reading of the law and the settlement is that there's no need for the judge to take any extra evidence and context into account, their reading is effectively that Elon is guilty by default based on the text of the tweets. An evidentiary hearing would broaden the scope of the lawsuit and bring in constitutional arguments - which is absolutely not where the SEC wants to go.

Elon's lawyers almost immediately requested a sur-reply motion:

Docket for United States Securities and Exchange Commission v. Musk, 1:18-cv-08865 - CourtListener.com

LETTER MOTION for Leave to File Sur-Reply Memorandum addressed to Judge Alison J. Nathan from John C. Hueston dated March 18, 2019. Document filed by Elon Musk.(Hueston, John) (Entered: 03/18/2019)​

Note the almost immediate motion: Elon's lawyers were expecting this and were ready for this. Their (atypically long) motion was probably mostly written already, ready to be filed on a moment's notice. Note how the SEC's similar motion on March 10 was just a single standard sentence.

Elon's long procedural motion to allow them to reply comes with full citations pointing out how the SEC violated procedure:

Dear Judge Nathan:

We represent Elon Musk in the above-captioned action. Pursuant to Local Rule 3B, I write on behalf of Mr. Musk to respectfully request the Court’s permission to file a sur-reply memorandum of no more than 10 pages by March 22, 2019, in order to respond to new factual assertions and legal arguments raised in the SEC’s Reply Memorandum to Defendant Elon Musk’s Response to Order to Show Cause(the “Reply”). The Reply included, for example, 61 pages in new exhibits and new allegations regarding the Tesla Senior Executives Communications Policy(see Reply at 10 & Ex. 12). CE Int’l Res. Holdings LLC v. S.A. Minerals Ltd. P’ship, 2012 WL 6178236, at *2 (S.D.N.Y. Dec. 10, 2012) (“It is improper in this district and this circuit to introduce new arguments in reply.”); Travelers Indem. Co. v. Excalibur Reinsurance Corp., 2013 WL 4012795, at *2 (D. Conn. Aug. 5, 2013) (“[A]party may not attempt to cure deficiencies in its moving papers by including new evidence in its reply to opposition papers[.]”). Among other things, Mr. Musk would like to address the SEC’s unsupported assertions and submit documentation reflecting the negotiation history between the SEC and Mr. Musk and Tesla, which undermines the newly-presented interpretation the SEC sets forth in its Reply.

Respectfully submitted,

s/John C. Hueston John C. HuestonCc:Counsel of Record​

Note that it was HIGHLY improper for the SEC to do this: introducing new evidence and new legal arguments on a motion they started is close to professional misconduct if I'm interpreting the rules correctly. If the SEC wanted to use these pieces of evidence and these legal arguments they should have done it in their first motion. "Surprising" the other party in a supposedly last filing before a hearing is not only not allowed, it's prejudicial and against procedure and basic trial etiquette.

Also note that the motion was submitted by John C. Hueston, the founding partner of Hueston Hennigan:

John Hueston - Hueston Hennigan Founding Partner

John Hueston has been described by Chambers as “the best lawyer of his generation” with a “commanding reputation for his trial advocacy.” Rated one of the nation’s top trial lawyers, Mr. Hueston has been recognized twice as a “California Lawyer of the Year,” including for his recovery of $5.15 billion after trial.​

Hueston-Hennigan are putting all their weight behind this - you don't often see a founding partner of a law firm filing a procedural motion ...

The almost immediate filing also suggests to me that they not only expected such a filing from the SEC, but that they actually wanted this outcome and had figured out the best reply in advance.

Basically the SEC already went outside the usual civil procedure of contempt of court motions by requesting a third round - now Tesla is requesting a fourth one. The regular contempt of court proceedings is civil cases is that the 'accusing' party files a motion and the 'defending' party gets a single reply, and a contempt hearing follows. The SEC got one more reply, which is in principle prejudicial to the defending party as it gives the SEC two rounds while they only had one round. So I was expecting this but was unsure whether Elon's team would request a sur-reply motion.

BTW., it's pretty clear from recent price action that some traders apparently knew about this - if SEC officials are leaking to certain market participants about these legal proceedings then that's insider trading, tipping, breaking of attorney client privilege, professional malfeasance worth of jail time and disbarment for life ...

If so then these SEC officials/lawyers are playing a dangerous game here, committing far more serious violations of the law (several felonies) and inflicting far more economical damage than even the worst thing they are accusing Elon of.

As I pointed it out yesterday the pretty much only way forward for the SEC was to escalate, while trying to narrow the scope of the case. So them opposing an evidentiary hearing and ratcheting up the rhetoric was fully expected. They are still trying to pressure Elon into settling. Instead what they are offering is further proof of bad faith and of the harmful effects of their interpretation of the settlement.

My take: it's amateur hour at the SEC and the judge will NOT be amused. But again, I'm not a lawyer and this is just my opinion.

 

[Tslynk67]

Cheers!


While judge ruling can come out anyway, why would Musk have to check with counsel for providing numbers that he had mentioned in cc, and that was stuck with him.

Most interesting thing would be whether SEC actually read details of cc prior to filing the contempt litigation. So far we don't know whether SEC was aware of Musk's cc statements prior to the filing? If it was aware, then at least there was no clarification on why previously provided numbers were a violation?

Evidently not as they didn't reference it in their original contempt of court filing.

There's a lot of back-tracking and semantics in this latest filing too, plus they claim that Elon has waived his 1st amendment rights - is that even possible?

Furthermore, I do wonder why this ruling now applies to Musk, why wouldn't the SEC now apply this standard to all CEO's - to "protect" shareholders?

 

[Lessmog]

The fact that they emphasize that total vehicle production wasn't disclosed is correct - Musk didn't cite total vehicle production, only Model 3. But they've of course cited S+X production figures elsewhere many times. The SEC is basically saying that "adding two public numbers together" is material information.

Does that mean that addition is totally new to SEC & Chief Council? Well, it figures ...

 

[Tslynk67]

The judge needs to fine the SEC for... (Oh, I don't know...)... $20 Million dollars?

Ahem, $40m + costs

 

[Fact Checking]

they claim that Elon has waived his 1st amendment rights - is that even possible?

No, waiving 1st Amendment rights in this context is not possible under the precedents cited by Elon's previous reply already, but the SEC's argument is flawed in another way as well: the settlement was an agreement between three parties, and if there's no "meeting of minds" between Elon and the SEC, how can a valid contract have been formed to begin with covering this particular conduct by Elon? Furthermore two of the three parties (Elon and Tesla) are interpreting it the same way, only the SEC is trying to expand the scope of the settlement agreement.

I.e. the actual track record of the September-October settlement negotiations between the SEC, Elon and Tesla very much matters, as it defines the scope of the understanding of the settlement contract. (Which contract the judge's order turned into a consent decree.)

I have trouble deciding whether the SEC's lawyers are being hopelessly outclassed by one of the top trial boutique law firms in the U.S., or whether they have some factual ace up their sleeve. I'm leaning towards amateur hour at the SEC - but please be aware that these proceedings are risky for both parties.

There's one more potential legal argument I expect Elon's team to raise: the SEC settlement was basically blackmail under duress, under the obviously, widely recognized and published threat of grave economic harm inflicted by the SEC on Tesla shareholders if they don't settle. Elon's expert testimony from an MIT professor cites the actual economic damage the SEC's first motion did to Tesla's stock price.

I believe this MIT expert opinion which is proving the harm the SEC is inflicting is one of the most dangerous pieces of evidence the SEC is trying to keep from getting recognized by the judge ...

I don't expect Elon's team to try to invalidate the settlement itself, at least at this stage - that would just allow the SEC to re-group and attack again. I think Elon's team is angling not just to get the contempt motion dismissed, but also, if possible, to narrow the SEC's reading of the settlement through an order of the court, and maybe, maybe install a new precedent that limits the SEC's overly broad powers - but it's hard to tell at this early stage.

Note another angle here: if Elon's team can prove that the SEC's first motion was in bad faith - such as that it's contradicted by the plain track record of the settlement negotiations between the SEC and Elon/Tesla, they can ask for sanctions against the SEC and attempt to recover damages.

But that's (very) premature at this stage - they first need to get the evidence admitted and they need to win the legal arguments.

Also, prepare for another round of FUD: it's less than two weeks to the next delivery report and this combined with a SEC threat and Elon's "Q1 will not be profitable" statement is Max-Q for uncertainty.

 

[Tslynk67]

Just in case anybody missed KRs case winning post, follow the above back, like it, love it. Vital that the SECs misquotation becomes widely known.

Thank goodness it's posted here, so Musk's lawyers won't miss it...

 

[lklundin]

Hah, she posted her photo taken at a Tesla showroom during a recent trip to the US. Very human, with very real intelligence. Not the artificial kind.

Cheers!

Careful with the assumptions now...

 

[Fact Checking]

Except that Musk did not write - IN QUOTATIONS - "will make 500k". It was about 500k. The SEC is misquoting Musk, leaving out a critical adjective which hurts their argument, and doing so in quotation marks, as though it's a direct quote of Musk's tweet.

Indeed, that's a serious misquotation by the SEC which changes not only the meaning but also the context of Elon's tweet which was a reply tweet to the original "4000 Tesla cars loading in SF for Europe" tweet thread. It's a misquotation on a level that I don't think I've ever seen before. It's something you'd see in the worst corners of TSLAQ land but not in a filing to a federal court...

It's almost as if the SEC was trolling the judge to blurt out something prejudicial against the SEC, so they can appeal and get her replaced.

But I don't think the SEC will be able to troll Judge Alison Julie Nathan: she clerked for the 9th Circuit, she clerked for one of the top judges on the Supreme Court, she was White House counsel and legal assistant to Barack Freaking Obama carrying the nuclear codes for total world destruction on his person every time she was talking to him...

Are we seriously supposed to presume good faith here? I hope Musk's lawyer rips them to shreds over this.

First the judge must allow them to file a sur-reply (she might not - she might schedule a hearing instead), but if Judge Nathan does so I fully expect Elon's lawyers to rip the SEC's reply filing to shreds. Note that they only asked for 10 pages and 3 days to reply (by March 22, Friday).

This filing was IMHO a major unforced error by the SEC.

 

[Silent Ludicrosy]

Preview of Judge Nathan’s response to SEC:

 

[Cobbler]

...

I was reading this using Elon's voice in my head.
Djeezes, Fact Checking, you're good!!
I hope some day you'll be a Tesla board member

 

[SebastianR]

Regarding the SEC drama - great posts @Fact Checking - really you have no idea how much I enjoy reading your posts! Thanks!

Did Tesla increase the prices yet? I couldn't see an immediate difference but maybe I'm looking in the wrong places.

Also: if the month was to end today, this would be the month with best deliveries for Tesla in the past two years in Norway except for December 2017. Tesla Registration Stats
And this is without those >1000 Model 3 from the Glovis in Oslo which didn't hit the roads yet... So I can totally picture 30k deliveries in the coming 10 days (well - to be frank I also hope for a push to end the quarter with the right kind of cash flow numbers )

 

[WarpedOne]

Did Tesla increase the prices yet?

Austrian prices are still the same as last week.

 

[Tslynk67]

Preview of Judge Nathan’s response to SEC:

Thank's, that's going straight to Twitter :^)