Friday, November 23, 2018

Tesla CEO Elon Musk Sued by SEC for Securities Fraud (2018)

On August 7th2018 at 12:48 P.M. Elon Musk, founder and chairman of the company Tesla tweeted, “Am considering taking Tesla private at $420. Funding Secured.” from his personal twitter account. The price of $420 was substantially above the current set price of TSLA which was listed at just above $340. As a result of this tweet, the price of TSLA shot up to about $380, an almost 12% increase in the matter of a few hours. On August 24th the SEC (Securities and Exchange Commission) filed a subpoena against Tesla, accusing Musk of committing securities fraud.
Tweet from Musk's Twitter account
The first and most important stakeholders are the shareholders. The shareholders were negatively affected because Tesla shareholders ultimately lost money in the long-term. Short-term investors (day traders in particular) had an opportunity to make money, however those are not the shareholders that a business should be trying to please. They don't help the company long term. Employees were negatively affected. Many employees feared for their jobs and ultimately decided to quit based on the actions of Musk. Lastly, the consumers. Many people now think of Elon Musk's tweet when they think of Tesla. Even though it is a car that is beneficial to the environment, something a Tesla owner can be proud of; when someone sees you driving your Tesla, they will just think about how you are supporting a man who has committed securities fraud.
According to Individualism, the main objective of a company should be to maximize profits for their shareholders while remaining within the constraints of the law. It is not up to the businesses to decide what is morally right and wrong, but it is up to society, and the lawmakers to put rules in place which will give business the constraints they need to remain within. Businesses should feel morally obligated to maximize profits because spending shareholders money on any other objectives would be morally unjust. When Musk tweeted, “Am considering taking Tesla private at $420. Funding Secured.” the SEC stepped in and slapped Musk with a lawsuit accusing him of fraud. Sean O’Kane and Elizabeth Lopatto write, “Prosecutors note that Musk’s tweets on August 7th sent Tesla’s stock price up, creating immediate value for investors, but that the resulting chaos in the following weeks ultimately did those shareholders harm.” “Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, tells The Verge. “Everything in the last couple months has been very disturbing for investors. The rules didn’t seem to apply, and the SEC believes they did, or should.” Even though Elon Musk’s intentions were the opposite, not only did Musk’s tweet actually create more harm than good for investors, Tesla also had to pay $20 million dollars in fines creating more monetary loss for the company. So, under the microscope of Individualism, Elon Musk gets a horrible efficiency score. Not only did he break the law committing securities fraud, but he also lost the shareholders money directly through the fall in the price of the stock and indirectly through the fine issued to the company.
Elon Musk Smoking Marijuana
In Kantianism, the business must respect the customers enough to believe they can make the decisions that will best benefit them, and the businesses must do their best to empower the customer to do so. Many people argue that Elon Musk’s motivation for the infamous tweet was his hatred for short sellers. The SEC uses this in the subpoena and cites it as such.  Sean O’Kane and Elizabeth Lopatto write, “Musk has been battling short sellers — traders who bet Tesla stock will decline —on his Twitter account for a while, and this is part of the basis for the SEC’s complaint. By August 18th, the SEC notes, more than $13 billion shares of Tesla were shorted“On August 2nd, Musk emailed Tesla’s board of directors, head of finance, and general counsel to explain his reasoning for taking Tesla private. In the email, Musk wrote that being public “[s]ubjects Tesla to constant defamatory attacks by the short-selling community, resulting in great harm to our valuable brand,”” ““This reinforces the idea that maybe he was trying to manipulate the price, says Chester Spatt, a former chief economist for the SEC”” Musk’s motivation was not lead by a desire to benefit anyone but himself and his ego. The volatility of Tesla’s stock price was extremely high, and still is. Musk’s tweets are definitely a contributor to that. Musk’s intentions were to upset the short sellers by manipulating the share price of Tesla to go up. However, the companies performance and their value according to the market should be in control of the stock price, not his personal twitter account. Musk was treating people as a means, and not and end. For this reason, Musk is morally in the wrong. Under Kantianism Elon Musk receives yet another failed grade as CEO.
Under a Utilitarianism perspective, the main objective of a CEO should be to make decisions that make the majority of people happy. There will always be people that benefit more, and benefit less depending on their perspective, but that is not of concern to the businesses. The Business main concern must be making decisions that coincide with making the vast majority satisfied. Musk’s tweet only benefited one party, and that was a select group of short sellers (and a small amount of day traders). Tae Kim and Leslie Picker from CNBC write, “One of the more notable short sellers in Tesla's stock, Jim Chanos of Kynikos Associates, commented on Musk's tweet to CNBC "The short position is the best thing the stock has going for it. 'Musk vs The Shorts' is a far better narrative than 'Tesla vs Mercedes/Audi/Porsche,'" Chanos said.”Any long term investors were hurt as they lost money due to the lawsuit, so shareholders were not happySean O’Kane and Elizabeth Lopatto write, “Tesla’s board should be nervous, both Spatt and Elson say. According to Elson, Tesla board members should expect to be deposed. Spatt says that the board should begin planning for succession. “They need to recognize that they can’t simply rely on Musk,” Spatt says.” “In a separate article titled, Tesla’s accounting and HR heads resign on the same day” Sean O’Kane writes, “Tesla’s chief accounting officer, Dave Morton, has resigned after less than a month on the job”As a result of Musk’s tweet, the employees were also dissatisfied. Under vew the Utilitarianism, Elon Musk has failed. Almost every stakeholder in this situation was left unhappy.
Virtue Theory:
In virtue theory, it is not the result of your actions that determine whether you are morally in the right or the wrong. It is the motivation that caused your decision making that makes you morally just or not. It is Musk’s ideas that made Tesla what it is and he needs to be chairman for the company for Tesla to to reach its full potential. Courage, honesty, wisdom, justice, prudence, temperance, intelligence, insight, care, compassion, leadership, and teamwork, are all positive vices that one most posses and practice in order to be successful in business, and Musk has proven to show these in the past. However, in this situation that pertains to his tweeting, and the manipulation of the stock price, some of the more negative vices such as dishonesty, and selfishness, are being practiced by Musk. Musk was dishonest when he said he had “the funding secured” to take Tesla private. Sean O’Kane and Elizabeth Lopatto write, “Musk later claimed that Saudi Arabia’s sovereign wealth fund was in talks with Tesla to potentially fund the effort,” In the write up of Musk’s case, the SEC writes, ““In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,” prosecutors write in the complaint. Specifically, they say Musk’s “funding secured” tweet was “false and misleading.” Prosecutors say that Musk’s subsequent statements were false and misleading, too.” Musk practices selfishness when he manipulates the stock price just so short sellers will lose. He was treating people as a means, and not and end. When being critiqued under the Virtue Theory, Musk does poorly once again. 
Elon Musk
Grothaus, Michael. “Elon Musk Was Offered a Much Better Deal from the SEC.” Fast       Company, Fast Company, 3 Oct. 2018,          was-    offered-a-much-better-deal-from-the-sec.

Kim, Tae, and Leslie Picker. “Elon Musk's Tweet about Going Private Costs Tesla Short Sellers     $1.3 Billion.” CNBC, CNBC, 8 Aug. 2018,       tweet-about-going-private-costs-tesla-short-sellers-more-t.html.

O'Kane, Sean, and Elizabeth Lopatto. “Elon Musk Sued by SEC for Securities Fraud.” The             Verge, The Verge, 27 Sept. 2018,           elon-musk-tesla-funding-tweet.

O'Kane, Sean. “Tesla's Accounting and HR Heads Resign on the Same Day.” The Verge, The                                               Verge, 7 Sept. 2018,       resign.

OLSON, TOM KRISHER and ALEXANDRA. “Elon Musk Sued by SEC Over 'Funding            Secured' Tweet.” Time, Time, 27 Sept. 2018,         funding-secured/.

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