Nobody's claiming the annualized number is a lie. The claim is the original post is wrongly saying 500k total for the year and wasn't run past someone else like Musk promised he would for all Tesla related statements.
> Nobody's claiming the annualized number is a lie.
I was talking about whether "Musk meant the annualized number." is true or a lie.
> The claim is the original post is wrongly saying 500k total for the year and wasn't run past someone else like Musk promised he would for all Tesla related statements.
The agreement was that he would get approval for posts with material information.
If he's citing a number everyone already knows from the public report, then it's not material information. (except in some kind of unreasonably-broad sense that would make "Tesla makes cars." an offending tweet)
So if he says 500k, and he's talking about the annualized number in the previous public report, then there is a strong argument that he doesn't need approval.
If he says 500k and it's not annualized, then it's a new number, and he does need approval.
It doesn't matter what he meant, it matters what the statement would be reasonably expected to mean. Saying we'll produce 500k can't reasonably be read as we'll have an annualized rate of 500k, which is why he needed to issue a correction.
Original statement from the annual report was "Barring unexpected challenges with Gigafactory Shanghai, we are targeting annualized Model 3 output in excess of 500,000 units sometime between Q4 of 2019 and Q2 of 2020."
So saying "we'll produce 500k cars in 2019" is a lot of new information:
- it's now definitely 2019, not Q2 2020
- it's 500k total, not just "annualized output"
- risk of "unexpected challeges" in Shanghai disappeared.
And do you think that's because he got such significant new information in the two weeks since the report, or because he summarized badly?
By itself it looks like new information. But once you consider it's a typical post on twitter, it's quite plausible that it's a botched quotation.
The agreement pertains to posts that "contain, or reasonably could contain, material information". Sounds like it needs [a likelihood of] actual material information to count.
(This is all assuming that "material information" is info that's not already widely publicly distributed. In other words I am assuming that a tweet of "Tesla makes cars." would not violate the agreement.)
(Also, none of this precludes him getting in trouble for a misleading tweet, entirely separately from whether he violated this agreement.)
> If he's citing a number everyone already knows from the public report, then it's not material information.
The production and sales figures of a car maker are always material information, IMO. Under the facts you posit, they would not be non-public or novel information, but they would still be material information.
Even with that, he was not re-communicating previously issued guidance unchanged. Even with that and even if he were, he still needed to get approval prior to doing it.
> they would not be non-public or novel information, but they would still be material information.
Well I attempted to address that. Do you think a tweet of "Tesla makes cars." would violate the agreement?
I'm not joking or being rhetorical when I ask that. The answer could be "yes", but in that case I feel like the agreement was written to be intentionally misleading because it should just say "any mention of Tesla".
> Do you think a tweet of "Tesla makes cars." would violate the agreement? I'm not joking or being rhetorical when I ask that.
I would agree that particular statement is so utterly obvious and completely devoid of news content as to not violate the agreement. However a statement that "Tesla is going to begin shipping a new model of car" or "Tesla is going to begin shipping the Tesla truck" or "Tesla is going into the solar business by bailing out my other company" or other statements would be material (and therefore subject to pre-approval).
Note that "Tesla makes cars" is itself materially different from "Tesla expects to ship around 500K cars in 2019" (even before considering that the former is true and the latter is false).
> However a statement that "Tesla is going to begin shipping a new model of car" or "Tesla is going to begin shipping the Tesla truck" or "Tesla is going into the solar business by bailing out my other company" or other statements would be material (and therefore subject to pre-approval).
If those are all things that were in a recent public report, I don't see a difference. They're all public information about the company, and they all matter. Anything in the quarterly report should count as fully obvious in a "reasonable investor" context.
> Note that "Tesla makes cars" is itself materially different from "Tesla expects to ship around 500K cars in 2019" (even before considering that the former is true and the latter is false).
How so? If anything, "Tesla makes cars" is vastly more important than their production expectation. Is the different that it's in future tense? That again would only make his tweet less material.
That they were in a recent (but not within 2 days) public report is not in compliance with the prior consent decree entered into with the SEC from his prior misleading tweets in the late summer of 2018 which required the company to institute and executives to follow a policy designed to prevent such misleading tweets in the future. The company elected to enact a policy that clearly requires any edits to previously released/approved material to be re-approved and any disclosures more than 2 days after the approval to be re-approved. It is obvious that Musk violated that policy.
If it was material information, he very clearly violated the policy.
The rules about editing don't matter, because this post wasn't an edit.
But what does "information material to Tesla or its stockholders" actually mean?
If we take it completely literally, then almost any tweet that mentions Tesla would be in violation.
Maybe that's the actual intent. But it doesn't much sense. Why wouldn't the agreement just say that? And he's posted tons of tweets about Tesla, largely referencing news articles, and the SEC didn't say a word about any of them. Did he get approval for every single one of them? I think it's meaningful that the only tweet the SEC complained about was the one that appeared to have new information.
It seems like there's an implication that to be "material" the information has to actually matter to the people that get it. If he cites something that was in a news article, such as the 500k number, then it wouldn't be a problem, because everyone already has it.
And again, it's not an edit, so he can't be breaching the rules about edits. It's either a straightforward release of material information and he's in violation, or it doesn't count as material information and he's off the hook.
Is there any possibility in your mind that releasing a projected number of sales that is on the high end of a range previously given (which would be an edit of sorts) and was false/misleading was not material information to investors or prospective investors?
I have zero doubt it’s both material and misleading, even though material would have been enough to breach the prior agreement, but the combination of both is unlikely to escape the SEC attention.
I also don’t think this is anywhere near as bad as the summer “Funding Secured” outright fraud. If he’d done them in the opposite order in time, we might not ever be talking about this one and almost surely wouldn’t be getting SEC ire over this one (and obviously couldn’t get a contempt of court charge). With the pattern of facts as alleged, I think he’s well earned a contempt of court charge, and is likely both legally and literally true that he has contempt for the court.
Let me put it this way. If he goes on twitter and lies, then he can get in massive trouble but I don't think this agreement applies. This specific agreement is about him releasing actual information.
I don't consider lies to be "material information".
So in this case he was quoting public info, and he was misleading.
The agreement only cares about the first half of that sentence, and there are reasonable arguments in either direction about whether a quote of public info violates the agreement.
Then we come to the "misleading" part. Maybe he gets in trouble but I think using the agreement for that is barking up the wrong tree. Also people should expect tweets to have sloppy phrasing.
Excerpts rom the SEC court filing: The SEC required this provision as a term of its
settlement with Musk in order to prevent Musk from recklessly disseminating false or
inaccurate information about Tesla in the future.
On February 19, 2019, Musk tweeted, “Tesla made 0 cars in 2011, but will make
around 500k in 2019.” Musk did not seek or receive pre-approval prior to publishing this
tweet, which was inaccurate and disseminated to over 24 million people. Musk has thus violated the Court’s Final Judgment by engaging in the very conduct that the preapproval provision of the Final Judgment was designed to prevent.
As one of the terms of his settlement, Musk
agreed to comply with procedures implemented by Tesla that would require him to seek
pre-approval of any written communications, including social media posts, that contained
or reasonably could contain information material to Tesla or its shareholders.
Consistent with the Court’s Tesla Judgment, on December 11, 2018, Tesla
adopted a “Senior Executives Communications Policy” (the “Policy”). Written Communications that contain, or reasonably could contain,
information material to Tesla or its stockholders must, prior to posting or
other publication, be submitted to Tesla’s General Counsel and Disclosure
Counsel (or in the event of the General Counsel’s unavailability, Tesla’s
Chief Financial Officer and Disclosure Counsel) for pre‐approval.
Authorized Executives are not authorized to post or publish Written
Communications that contain, or reasonably could contain, information
material to Tesla or its stockholders without obtaining pre‐approval. The Policy provides a non-exclusive list of examples of information that may be
“material to Tesla or its stockholders,” which includes “projections, forecasts, or
estimates regarding Tesla’s business.” Id. at 1-2. Finally, Tesla’s Policy requires that
[i]f an Authorized Executive (i) further edits a pre‐approved Written
Communication, or (ii) desires to release a Written Communication more
than two (2) days, after receipt of written pre‐approval, such Authorized
Executive will re‐confirm the pre‐approval in writing in accordance with
this Policy prior to release.
Could you make an attempt at arguing the reasonable argument in the other direction?
The argument is that "information material to Tesla or its stockholders" only applies to information that wasn't already public.
The tweet may have appeared to have nonpublic information, but it didn't actually have any.
Therefore the tweet didn't need approval.
That's the core of the argument. Is that clear enough? I already tried to explain why I think it's reasonable in previous posts, but I can do it again if you want me to.
I missed that as the thrust of your argument, because even if the information in that tweet was "material but not non-public due to previously approved disclosure", it would fall afoul of the "more than 2-days since approved" and "approved previously but now has edits" restrictions, which still leaves Musk in violation of the policy and therefore the court agreement.
(I also believe that the update of the range from "350k-500k" [previously public] to "around 500k" [in the tweet] to be a material update when given by the CEO of a company and that the SEC will argue that is also the case, but I agree/admit that there's some room for argument on that point.)
Thank you for the topic-centered discussion and I hope you experienced (as I did) this exchange as "disagreeing without being disagreeable".
> even if the information in that tweet was "material but not non-public due to previously approved disclosure", it would fall afoul of the "more than 2-days since approved" and "approved previously but now has edits" restriction
It's more that the information is "material but not non-public", end of sentence. He's not piggybacking on a previous approval of a post. He's piggybacking on the fact that it's public.
Even if the previous disclosure had been in a post by Musk, I'd argue those rules don't apply to a new post. Those rules are about how approval for a specific post can be revoked, by delaying too long or by editing. They only affect that specific post, not future uses of now-public information.
But the previous disclosure was not such a post. It bypassed the entire tweet approval process. So these secondary rules definitely do not apply.
> (I also believe that the update of the range from "350k-500k" [previously public] to "around 500k" [in the tweet] to be a material update when given by the CEO of a company and that the SEC will argue that is also the case, but I agree/admit that there's some room for argument on that point.)
That's an okay belief. I'm not saying the result is clear-cut, just that Musk has a reasonable argument.
> Thank you for the topic-centered discussion and I hope you experienced (as I did) this exchange as "disagreeing without being disagreeable".
> It's more that the information is "material but not non-public", end of sentence.
Even there, I think that's covered by "Written Communications that contain, or reasonably could contain, information material to Tesla or its stockholders must, prior to posting or other publication, be submitted to Tesla’s General Counsel and Disclosure Counsel for pre‐approval."
Taking it literally might be the right interpretation. But it also fails to make sense in other ways. Is there an implied "not already public"? It's honestly hard to tell.
