American commercial law goes out of its way to avoid criminalizing stupidity. At a certain level, the difference between a genius and a madman is the genius was correct. They are indifferentiable without the benefit of hindsight.
The nail in Elon's coffin (or lack thereof) will probably revolve around the degree to which he documented his animus towards short sellers in the days leading up to the misstatement.
That's a huge issue. If he made his misstatements with the intent of hurting short sellers, that's criminal fraud. If he just made a material misstatement, with no intent to harm anyone, it's a civil case.
Every CEO dislikes short sellers, and nearly every CEO makes "material misstatements" now and then. What separates that from fraud is what the SEC focused on in their comment: scienter.
Scienter just means intent. It's literally just the fancy legal term for intent.
Thus, it matters very much that Musk has a history of trashing short sellers and wishing harm to them, because they can use that history to establish that his tweet was made with the intent to defraud market participants and materially affect the price of Tesla's stock.
Especially the "funding secured" bit. You don't say "secured" if it's not really secured. There is no legal interpretation where "secured" is a harmless mistake.
Again, every CEO dislikes short sellers and literally everything they do to talk up the company hurts shorts, by definition. You don't need any tweets to establish that. It's a given. And every CEO misstates things and makes errors and in big companies every statement moves the stock price. The issue is intent.
What you are doing is focusing on the misstatement, adding in fancy sounding terms like "legal interpretation", and whipping that up into intent to defraud. But as the SEC explicitly addressed in the cited comment, they set the "state of mind" bar higher than mere misstatements. You are going to need more than that to establish scienter.
Your fancy term aside, there actually are other interpretations of his comment. He may have been overzealous. He may have overestimated his investors intent.
Let's look at it another way. Musk is a reasonably smart guy. How far was he going to get with this alleged scheme to intentionally defraud the market? How long until everyone realized the funds were not actually secured and the fraud was revealed? Like, 2 hours? That would be the stupidest fraud in the history of frauds. The conclusion is that, perhaps he actually believed the deal would come together. Erroneously, but erroneous statements are not enough for fraud; the key factor is state of mind.
That and if he's able to show he really thought funding could have been secured but fell through. IIRC we still don't know the full story on that.
"Funding secured" and "funding to be secured" are materially different terms. The point of "secured" is it's been bindingly, definitively agreed upon in a way that makes falling through very, very difficult.
His best defense is, absurdly, arguing a seasoned CEO doesn't understand what "funding secured" means. He might be about to inject enough doubt into a jury to avoid criminal charges, but I don't think that will outweigh the preponderance of evidence which is required for a civil judgement.
But that's the SEC's investigation. The deal with the article today, is that the DoJ... aka the FBI is beginning to get involved. This suggests that the FBI is concerned with CRIMINAL issues with regards to that tweet. Criminal penalties looks unlikely IMO, but who knows what the FBI manages to dig up?
In either case, the FBI looking into it doesn't look good at all. If anything, it helps solidifies the SEC (non-criminal) case of negligence.
Optimism might justify a statement like "final stages of signing funding" or "almost closed the deal" or even "funding as good as secured" -- there might be ambiguity there. Not for "funding secured".
This is as close to textbook as you can get.
No this is not textbook at all. See previous citation from the SEC re: intentionality as a key element in criminal fraud.
"Clearly and knowingly false" is just a serious-sounding way to say a misstatement. Did Musk not actually believe in his heart that the deal was basically done? It wasn't, of course, but it takes more than being incorrect to constitute fraud. It takes intent to do something you know is wrong. Wishful thinking may be fraud but it is not necessarily textbook fraud.
So you're saying that, the way securities law works, personal optimism is all it takes to justify any representation of any upcoming financing terms? There's no requirement beyond what's in his heart?
Oops, I mean I didn't say that. The head of the San Francisco SEC office did.
In English, the sentence "Secured funding" is ambiguous in meaning: as a shorthand sentence, it could mean "we would only use secured funding for a transaction like this".
"Secured debt" is a thing, and therefore secured funding is a thing. Unless he clarified it someplace else in a way that was not in his favor, there is plenty of wiggle room in that sentence.
[0] https://twitter.com/elonmusk/status/1026872652290379776?ref_...
“When you talk about fraud,” [Jina Choi of the SEC] answered, “you’re talking about a state of mind, you’re talking about mens rea. We call it scienter. You have to do something with intentionality. The idea of just making a misstatement doesn’t necessarily rise to the level of fraud."
Misstatements can “be the first step to fraud,” Choi had added. “But generally, when we talk about fraud the F word, I think we are talking about a state of mind that’s a little bit higher than that.”[1]
That telegraphs a pretty lenient stance on misstatements that aren't completely fabricated. And there were actual serious negotiations happening here. That's not in dispute.
Without question, Musk made a misstatement. But what was his state of mind? Was there intent to deceive, or was he merely overzealous in his interpretation of the negotiations? If he can argue the latter then it may not rise to the level of criminal fraud.
[1] https://techcrunch.com/2018/09/13/a-tesla-investor-says-he-w...