Coyote Blog

I was listening this evening to the excellent Hidden Forces podcast on Tesla and they said something that really resonated with me -- its hard to discuss Tesla because there is so much crazy stuff going on:  A CEO who in many ways channels Donald Trump's worst characteristics; multiple SEC investigations, an ongoing contempt hearing; a story yesterday about thuggish behavior towards a whistle blower; strategic moves that are made, unmade, and then changed again in just a few weeks; astoundingly high turnover in management ranks, including an esteemed general counsel who couldn't hung around for even 60 days and then purged all reference to Tesla from his CV; fantastically passionate bull and bear communities; expansive promises that are seldom kept; outright fraud -- all in a company valued at $60 billion dollars and whose stock price rose 2% today under a barrage of negative news that would melt companies that have 100-year track records.  I have been meaning to do an update on Tesla but where to start?  How can I even bring readers unfamiliar with the story up to date?  I have started and stopped this article about three times, but now I am going to plow through and get something out.  If it is not entirely coherent and far from complete, my apologies.  If you want more, go to @teslacharts on Twitter as a starting point and you will discover a lot of really smart people who are, believe it or not, even more obsessed by the Tesla train wreck than I.

In the past I have limited myself to two issues.  The first is the outright fraud of the Tesla acquisition of SolarCity, another Musk company that was going down the drain until Tesla bailed it out.  The transaction appeared (even at the time) so transparently self-serving to Musk and his family that it just screamed fraud, and time has only made this clearer.  Musk sold the synergy-less acquisition to Tesla shareholders based on a solar shingle technology he portrayed as ready to go, but that still has not seen the light of day 2 years later.  In retrospect, it is crystal clear the solar shingle was a sham that was fraudulently hyped to make the deal go through.  This fire and forget approach to new product announcements has become very familiar at Tesla -- Musk scored extra subsidies from California with a battery swap technology he demonstrated one time and then has never been seen again, and Musk announced a new Semi truck and harvested a number of deposits for the vehicle and then has not even mentioned the product for months.  Since the acquisition, SolarCity new installations have fallen precipitously every quarter, demonstrating that Tesla had no real commitment to the enterprise, and this is only going to get worse as Musk announced that its last remaining sales channel is going to be closed.

The second Tesla issue I have tangled with is the strategic dead end that Tesla has reached, and the bizarre fact that a company in a capital intensive industry that is valued as a growth company has, over the last 12 months, virtually shut down R&D spending and now does less capital spending for its size than does even staid companies like Ford.  I won't cover all this ground again, I refer you to posts here and here-- If you are new to the Tesla story, start with these.   But in short, Musk made the fateful choice to take what was already destined to be an uphill climb for a new company to penetrate an extraordinarily capital intensive industry and made it an order of magnitude more capital intensive by his strategic decisions.  Specifically, Musk chose not only to start up car manufacturing from scratch, but to also build out his own sales and service network AND build out his own fueling network.  Kia was the last brand I can remember that penetrated the US market, and it only had to worry about investing in building cars -- it relied on third parties like Roger Penske and Exxon to build the sales, service, and fueling networks.  But Tesla is committed to building out all three.

This strategic decision really began to drag on the company in 2018.  Tesla's decision to do its own manufacturing -- in freaking California no less -- held back its growth as it spent years relearning auto manufacturing lessons already well-known to other players.  It has fallen behind in Model 3 production vs. its own stated goals and there is no apparent progress adding manufacturing capacity for a raft of announced but still theoretical products (semi, coupe, Model  crossover, pickup truck, revamped S&X).   A better approach might have been to contract for manufacturing like Apple does with the iPhone, especially since there seems to be a lot of excess capacity right now in Chinese auto production.  Even worse, as their fleet grew with the Model 3 ramp, Tesla was not able to invest fast enough to grow its sales, distribution, and service networks in proportion, leading to a lot of disgruntled customers that had bad delivery and servicing experiences.  The same is true for their charger network, where they have again not been able to keep up with investment and are now falling behind technologically as new entrants have faster charging times, times Tesla can't match without a major investment in upgrade of its network.  More manufacturing capacity, a better distribution network, more sales locations, more servicing capacity, more body shop capacity, more parts production capacity, more chargers and massive charger upgrades -- Tesla fell behind on ALL of these in 2018.

And then the really weird thing happened.  Sometimes growth companies fall behind when they grow to fast, but Tesla seemed to have stopped even trying to keep up with capital needs in the second half of 2018.  Their R&D fell, despite many promised new products that were a long way from delivery.  Their Capex levels fell to barely maintenance levels (what might be expected to just keep current plant running) and were reduced to levels as a percentage of sales that were lower than staid, traditional, non-growth auto makers.  Right when they really needed to make a capex push to make their strategy a reality, they stopped spending.

Tesla claimed, and claims to this day, that any slowdown is just the result of efficiency and responsible management.  But this is crazy.  Growth companies slow down and focus on profitability when the market is saturated and the growth phase is over.  Uber has not slowed down.  Even Amazon 20+ years in has not slowed down.  Slowing down is death for the stock price of a growth company, and Musk is -- if anything -- obsessively focused on the stock price.  Tesla is currently valued north of $60 billion. Without enormous growth expectations, a $20 billion valuation might be too high.  Added to this is the fact that after having the luxury EV market to itself for years, competition is finally coming from nearly every luxury care maker.  Tesla's 10-year moat is down to maybe 6 months.  It needs to be updating the S & X and rushing new products out ahead of competitors.  But they have almost given up on the S & X and Audi has beaten them to the market by at least a year and maybe two with a crossover model (the e-tron), a very popular format in the US right now.

And at first there does not appear to be any reason for this slowdown in spending.  Tesla has a stock that a dedicated group of fans gorge themselves on.  With a $60 billion valuation and a passionate fan base that thinks the company is still undervalued by at least a third, this company should be able to raise billions of capital easily.  They could theoretically raise $5 billion with less than 10% dilution -- Tesla almost dilutes itself that much every few years just from employee stock-based compensation.  Add its lofty valuation to what was reportedly $3.5 billion or so of cash on their balance sheet at the end of last year and consumer demand that the CEO describes as near-infinite, and this does not look like a company that should be slowing down.

How do we reconcile these facts  -- a near halt in growth investments despite lots of cash and a sky-high stock valuation?  Here are a few things going on under the surface:

• While Tesla had over $3 billion in cash, they also had over $2 billion in payables.  The company has a reputation of stretching payables to the absolute limit.  It may well be that the end of year cash number was the result of a lot of window dressing.  In fact, Tesla skeptics have looked at the interest they earned on their free cash in the fourth quarter and have argued that for this number to be as low as it was, Tesla's average cash balance must have been much lower than their end of year reported number.
• Savvy observers (of which I am not one) who know Wall Street argue that Tesla may well have either regulatory (e.g. SEC investigations) or practical (e.g. information they do not want to disclose in a prospectus) barriers to raising capital, and that the lack of a capital raise for many months can only mean that for some reason Tesla can't raise.
• Tesla just had to pay off nearly a billion dollars in convertible bonds when the stock price was not high enough to trigger the conversion
• Demand for Tesla cars in the US has fallen substantially in the first 2 months of this quarter.  Musk liked to portray the huge Model 3 sales ramp in 3Q18 and 4Q18 as the start of an S-curve, but now those quarters look more like a one-time bulge as Tesla blew through over 2 years in orders in just a few months.  Aggressive pull-forwards of demand by Tesla in the fourth quarter as well as the reduction in US and Dutch EV subsidies have also hurt.  [I have to add one note here just for color.  The Tesla fan boys have argued to me on Twitter that Musk has already explained this to their satisfaction -- that Tesla is diverting cars away from the US for their European Model 3 introduction.  This makes ZERO strategic sense.  What company ever enters a new market by giving up hard-won market share in their core market?  There is plenty of evidence that everyone who wants to buy a Tesla in the US is getting one with a very short lead time, implying this is a real demand drop and not Musk's typical supply-constraint story.]

A month or so ago I thought it very possible given these headwinds that Tesla may soon be facing a cash crunch if it cannot do an equity raise.  However, new events that have occurred over the last week convince me that this cash crush is almost a certainty.  There is no way I can explain Tesla's most recent actions as anything but a company desperately trying to stave off a near-term bankruptcy.  These actions include:

• In early March, Tesla's February sales numbers in the US were announced, and they were a disaster.  Within mere hours of this reveal, Musk teased an announcement (on Twitter, where else).  This event turned out to be a quasi-secret invite-only conference call involving what appeared to be hand-selected media members who had historically been generous to Tesla (only a later uproar by bulls and bears alike forced Musk to release a transcript. On the call Musk announced two things --
  1. Tesla would begin taking deposits for the long-awaited $35,000 Model 3 (though delivery dates were hard to pin down).  Musk had said not too long ago that Tesla was not able to make this car yet profitably, and he refused to discuss margins on the vehicle.  Skeptics like myself suspected that the car can't be made right now for a positive gross margin, and instead this was a back-door attempt to gain new financing via customer deposits.  A couple hundred thousand (theoretically) deposits of $2000 each could yield some real money for a cash-strapped company.  The only thing Musk would say about controlling costs on this product was #2:
  2. In a totally unexpected (even to most of Tesla employees and management) announcement, Musk said Tesla was closing its stores and going to an online-only sales model.  This would supposedly save 6% of the cost of the new cheaper Model 3's, ignoring of course that SG&A reductions do nothing to fix a zero or negative gross margin.  Everyone, including most especially Tesla store employees and maybe even the Tesla BOD, was stunned.  Here is a company whose US sales are going over a demand cliff and they respond by ... eliminating their stores and sales force?
• Simultaneously, Tesla has been announcing a series of price cuts on, worryingly, many of their highest margin products including the S and X and high-margin upgrades like paint and autopilot on the Model 3.  Almost no one can see how the company makes any sort of viable gross margin at these prices, and they have the look of desperation.  All these cuts did was aggravate buyers who had just paid the higher prices and who faced a suddenly lowered resale value for their car.
• Within days of the store closing announcement, the WSJ and others published stories about how Tesla was unlikely to see much savings from these closures as their leases all had expensive cancellation clauses that Tesla could still be on the hook for as much as $1.5+ billion.  Incredibly, this seemed to come as a surprise to Musk and helped reveal just how slapdash these announcements were.  Since then Tesla has announced that maybe some stores would stay open and maybe some sales people would not be fired but just have their bonus eliminated.  As I write this, no one really knows what Tesla is going to do, but to many observers this move looks more like what one does in a bankruptcy than in the normal course of growing a business (in fact, bankruptcy is the one time lease cancellation costs can sometimes be evaded).
• Tesla, furthering their management Abbot and Costello act, partially reversed their price cuts saying that prices would now rise a few percent, barely days after they were cut.  The net of the two announcements still result in vehicle prices substantially lower than in 4Q2018.
• In an incredibly bizarre move (and there is a pretty high, or low, bar with Tesla for saying something is truly bizarre), it was recently revealed that Tesla last November bought a trucking company, or really they bought a bunch of trucks, with stock.  Essentially, this is a $60 billion company with supposedly $3+ billion in cash and they are paying their suppliers in stock.  Oh, and by the way, remember when I said above that Tesla had already vertically integrated too much and could not afford their capital needs already?  Well, this is yet another silly vertical integration.  Tesla has no business being in the trucking business, a highly competitive business with a lot of incentives to offer good deals and great service for an incremental bit of demand from a growing company like Tesla.  My sense was always that there is plenty of 3rd party trucking capacity out there, but that truckers just did not like serving Tesla because Tesla pays its bills so slowly and acts so unpredictably and imperiously.
• Tesla continues to produce Model 3's near full volume (around 5500 a week, despite what the nutty Bloomberg model says) even given a fall in demand.  Tesla seems to be building inventory, and certainly the recent price cuts are not a sign they are supply constrained (as Musk continues to insist).  Tesla skeptics believe that Musk has signed a number of supplier deals where Tesla got rebates and price cuts in exchange for volume guarantees, and that Tesla is stuck over-producing cars or it will have to return a lot of money.  [update: @Paul91701736 who goes by Machine Planet on Twitter spends a lot of time observing and researching Model 3 production and says "there's one thing in this piece I can't agree with, a 5500/wk Model 3 production rate. I think ~4700 is the absolute max sustainable rate and it's been well below that most of the quarter"]
• Tesla is asking customers in Europe, as they did late in 4Q18 in the US, to pay Tesla the full price of the car even before they see it or schedule a delivery.  Frankly, I am staggered anyone would buy a car this way, especially with the fit and finish problems Tesla model 3 customers have found on delivery.
• Tesla added about $500 millon to its asset-back bank line of credit and continues to roll over some SolarCity debt.
• When it was obvious that the Model 3 announcement had not created enough deposit activity, Musk then announced they would introduce the long-awaited Model Y crossover, in a reveal set for Thursday afternoon March 14.

Tesla has admitted that it still has not even decided where to build the Model Y, much less started building the plant and tooling up for it.  Given that, the car HAS to be 18-24 months away.  So why reveal now?  Remember that Musk and Tesla have a history of using new product reveals as fund raising tools.  The fake solar shingle product got Tesla to buy SolarCity.  The fake battery change demonstration got Tesla millions in added subsidies from California.  The complete vaporware Tesla semi reveal gained Tesla millions in deposits from corporations that probably didn't expect to ever get the truck but wanted to virtue signal their green credentials (Tesla seldom mentions this product and has announced no plans for actually building it).  The announcement in April, 2016 of early reservations for a $35,000 Model 3 which turned out to be over 2 years ahead of it ever being available in volume occurred just ahead of a funding round.  I am sure experienced Tesla observers could list many more examples, but the point is that there is very good reason to believe that the Model Y reveal (and maybe a pickup reveal in the same way the coupe was thrown in on the semi reveal) is a cynical, desperate attempt by Tesla to raise some cash from consumer deposits.  My guess is that it will not work so well -- the recent $35,000 Model 3 announcement garnered few deposits and Tesla had disappointing deposit activity when they opened up Europe.  Surely folks have observed that putting down a deposit does not get one a car any faster, and just makes one an unsecured creditor of the company (and may even, as was the case recently, sign one up to pay a higher price than folks who come in only a few weeks later).

As an aside, you folks know that as a libertarian I do not advocate for a lot of extra regulation so take the following as a prediction rather than necessarily a recommendation.  Tesla has pioneered the deposit-taking, go-fund-me model for new car introductions, and I think that when this all blows up and the dust clears, one of the results will be tighter regulation of how companies handle deposits on their books.  I would expect the SEC to require better transparency on deposit numbers and that customer deposits be escrowed in some way and not co-mingled with general operating funds.  And while we are at it, I will recommend one regulatory / accounting change -- the ability of car companies to leave ZEV credits off their balance sheet entirely and use them like magic pixie dust out of the blue to spice up random quarters needs to end.  These are real assets and need to be disclosed on the books like real assets.

Disclosure:  I am short Tesla via long-dated puts.  Shorting Tesla seems to make a lot of sense but it can be dangerous and harrowing.  Yesterday we were looking at news of Elon Musk acting like a Mafia thug with whistleblowers and still dealing with the fallout of Tesla's rapidly changing and contradictory strategic announcements, and the stock was up 2%.  Be careful.

Readers will know that I have somehow been sucked into the Tesla vortex and spend too much time watching Tesla and Elon Musk's antics.  I tried to explain some of the reasons for this fascination here.  Every time I swear off following Musk, he does some new nutty thing, like his joke of a demonstration the other night of his Boring Company tunnel in LA  (as usual, Musk has come up with another idea that would look cool on the cover of a 1970's Popular Mechanics or Boys Life magazine but fails almost every engineering, physics, and business logic test).

Anyway, I am going to mostly resist writing about Tesla and discuss the strange bias many Americans (really, many Westerners) have against short-selling.  Here is a tweet from a random Tesla supporter that demonstrates what I see every day from Tesla fans:

In TSLA's case, SEC's purpose was the protect shortsellers - which aren't investors.

Bashing the SEC isn't illegal, they have no criminal authority.

— ThemeTeam (@ThemeTeamWP) December 21, 2018

lol no, shorts are not investors. They spread false information for profit and when proven wrong, they move to something else to stay relevant.

— ThemeTeam (@ThemeTeamWP) December 21, 2018

This notion that short sellers are not doing anything legitimate, that they do not deserve legal protections (or else should be banned entirely), and that they prosper only by spreading false information are not just a staple of hard core Musk fanbois, but are actually quite common attitudes.  I saw it just the other night watching the movie The Accountant again (a family favorite in part because a streak of OCD and Asperger's runs through my family).  In this scene, the guy talking is called Brax and he is a gangster and a mercenary, but for a variety of reasons the film-makers need to make him more sympathetic than the average thug.  Watch the justification he gives:

The movie-makers are expecting that the average viewer will discount his thuggery here because he is beating up a short-seller, and we all know those guys are unethical and destructive (by the way, I too would be tempted to short a company that has stuffed its workers' pension fund with its own stock, that is a big red flag to me).

Short selling, in which one is betting the value of an asset will go down in the future, is a perfectly legitimate and valuable way to participate in markets.  For those who are unsure what short selling is, here is how it works.  People who own large blocks of a stock, let's say Exxon-Mobil or XOM, can lend their stock, for a fee, to other people.  They do this as a way to generate extra income for their portfolio, particularly if they intend to hold the stock for the long term.  The people who borrow the stock then immediately sell it.  I know, this seems weird -- your neighbor who lent you his mower might be ticked off if you immediately sold it.  But folks who lend their shares know you are going to sell it.

So I borrow and sell 100 XOM shares for, say, $90.  If the price drops to $70, I can buy the stock back at that price and I make a $2,000 profit.  The risk, though, is that if the price keeps going up, I am going to have to buy back at a higher price and lose money.  If the price goes up too much, the broker is going to issue a margin call and likely force me to pony up more cash or buy back at the unfavorable price to cover my position.  If I had to sell at $110, I would lose $2000.

Note that short selling has a more dangerous risk profile than going long, or buying the stock.  If you buy 100 shares of XOM at $90, the most you can lose is $9,000 -- your losses are capped.  On the other hand your upside is unlimited -- if XOM goes up to $500, you make a fortune.  For short-selling, this is reversed.  The short-seller's gain is limited -- the most they can ever gain is $9,000 if the stock goes to zero.  But their losses are uncapped -- if XOM goes up to $500, they will have lost over $40,000.  And even if the stock shoots up to $500 and eventually falls to zero (as do many bubble companies that get shorted), it may be hard to ride the short position to the end, either due to margin calls or failure of intestinal fortitude.

Short selling makes a ton of economic sense in part because it HAS to improve markets.  First, it increases the liquidity of the market and the number and diversity of participants.  The more subtle reason is because markets and pricing are information discovery tools.  Short selling allows more people with information about a security to participate in this information exchange, which almost by definition improves the market.  As Don Boudreaux wrote years ago:

To ban short-selling of stocks is to short-circuit an important mechanism through which people share their knowledge and expectations with others.  Banning a mechanism that better allows share prices to reflect the expectation that the underlying assets are not worth as much as current market prices suggest does nothing to change the underlying reality.  Such a ban merely distorts knowledge of this reality

I like to think about economics and business issues but I am not an economist.  My layman's way of thinking about short selling was outlined in a post 10 years ago, written in reaction to a temporary ban in short selling during the market turmoil of 2008.

Someone noticed that just before certain stocks crash in value, there is a lot of short-selling.  So the US government has banned short-selling, at least temporarily.  Classic cargo-cult logic.

Boy this sure makes perfect sense in a time when we are concerned about speculative bubbles -- let's ban one of the most important tools that exist for bubbles to be shortened and made less, uh, bubbly.  Here is why (very briefly and non-technically) short-selling takes the edge off speculative excesses.

At the start of the bubble, a particular asset (be it an equity or a commodity like oil) is owned by a mix of people who have different expectations about future price movements.  For whatever reasons, in a bubble, a subset of the market develops rapidly rising expectations about the value of the asset.  They start buying the asset, and the price starts rising.  As the price rises, and these bulls buy in, folks who owned the asset previously and are less bullish about the future will sell to the new buyers.  The very fact of the rising price of the asset from this buying reinforces the bulls' feeling that the sky is the limit for prices, and bulls buy in even more.

Let's fast forward to a point where the price has risen to some stratospheric levels vs. the previous pricing as well as historical norms or ratios.  The ownership base for the asset is now disproportionately made up of those sky-is-the-limit bulls, while everyone who thought these guys were overly optimistic and a bit wonky have sold out. 99.9% of the world now thinks the asset is grossly overvalued.  But how does it come to earth?  After all, the only way the price can drop is if some owners sell, and all the owners are super-bulls who are unlikely to do so.  As a result, the bubble might continue and grow long after most of the world has seen the insanity of it.

Thus, we have short-selling.  Short-selling allows the other 99.9% who are not owners to sell part of the asset anyway, casting their financial vote for the value of the company.  Short-selling shortens bubbles, hastens the reckoning, and in the process generally reduces the wreckage on the back end.

If you want to understand the volatility of a stock like Tesla ($tsla), the issue often is not short-selling but the extremely tiny float -- only a very small percentage of the equity in the company actively trades, while the rest sit in hands of folks who are not going to trade or even lend the stock (e.g. Elon Musk).  With such a tiny float, small changes in sentiment lead to huge price swings, making it a hair-raising investment for both longs and shorts.  This situation would likely be worse without the shorts.

As for the supposed false information spread by shorts, I am sure that happens.  But information gathering by shorts is one of the reasons we should treasure short-selling.  Here is my analogy -- one of the few good things about having Donald Trump as President is that the media actually is doing its job and is skeptical of everything he says and does.  It digs into the truth of his every single statement.  And sometimes what the media comes up with is fake or wrong.  But I would still argue we are better off with this sort of accountability than we were with the media as lapdogs to Obama.  Just look at the problems and potential rights violations at the border.  The media ignored most all of this same activity when it was happening under Obama, but is rightly (finally) highlighting it under Trump.

Trump supporters hate the media, and argue that it was "long" Obama and "short" Trump, but whatever the reason, we are learning things we did not know before and knowledge has value.  Shorts play this same role in the market.  For years everyone fawned over Elon Musk and Tesla.  The dedicated EV magazines were basically house organs of Tesla, a sort of Tesla Pravda.  The longs did not want to see or hear any criticism.  Essentially, no one wanted to be skeptical of the Tesla story except the shorts.   The shorts may turn out to be wrong, but they are finding holes in the Tesla love story and that is valuable.

Postscript:  If you do not invest and want a tiny taste of the hate short-sellers engender, go find the hottest, rowdiest craps table in a Vegas casino and start betting the Don't Come line.

In my extended article the other day about Tesla I wrote of Elon Musk

Elon Musk is not the smartest guy in the world.  He is clearly a genius at marketing and brand building.  He has a creative mind -- I have said before he would have been fabulous at coming up with each issue's cover story for Popular Mechanics.  A mile-long freight blimp!  Trains that run in underground vacuum tubes!  A colony on Mars!  But he suffers, I think, from the same lack of self-awareness many people develop when they are expert or successful in one thing -- they assume they will automatically be equally as brilliant and successful in other things.  Musk creates fanciful ideas that are exciting and might work technically, but will never ever pencil out as profitable business (e.g. Boring company, Hyperloop).

Seriously, go back and look at old popular mechanics covers.  Here is one in my domain:

The magazine specialized in really cool ideas that 14-year-old geeky boys like me ate up in the 1970s.  But most of them share in common with Elon Musk's ideas that they will never be practical.  So it is not surprising that Popular Mechanics put out an absolute puff issue on Elon Musk, apparently aimed at helping the man Popular Mechanics loves rehabilitate his reputation after getting some bad press for making false promises and breaking securities laws.   The piece was such a hopeless PR piece masquerading as journalism that the Atlantic felt the need to call them out for it.

Other readers, particularly journalists, were flabbergasted, including several Popular Mechanics staffers and contributors who declined to speak on the record because they feared jeopardizing their jobs. “It’s not the job of a magazine to do some PR recovery efforts for somebody exhibiting unstable behavior just because you like that he makes cool cars and rockets,” one Popular Mechanics writer said. (Disclosure: I worked at Popular Mechanics as a web intern for about a month in 2012.) For many journalists, the essay collection was a love letter bursting with unbridled, unfiltered admiration for Musk, a public figure the magazine covers, regularly and objectively. The material reads as if it came straight from the public-relations managers whose jobs are to make their boss look good.

In response to criticism the Popular Mechanics editor said:

D’Agostino said he decided to do the project after reading a slew of negative press of Musk and his properties, and, as he put it in the final collection, “myopic and small-brained” criticism. He cited as examples news coverage of the misleading tweet about Tesla, the ensuing SEC debacle, Musk’s weed experience on Joe Rogan’s podcast, and the entrepreneur’s relationship with the singer Grimes....

Musk, he said, is a good representative for the Popular Mechanics ethos. “It’s always been a magazine about what’s possible and the people who sort of tinker with things and solve problems with the aim and goal of improving human life and existence, and using technology to make things better,” he said. “When you look at someone like Elon Musk, we kind of think of him as one of us. He’s doing something very Popular Mechanics—you don’t know if it’s going to work, but he tries these things and gives it his all.”

I am perfectly willing to acknowledge Musk's good points, as I did in my long essay linked above, but in my opinion Musk is leading a lot of very naive investors over a cliff.  Go read the Tesla fan boards and the $tsla tag at twitter and you will see a series of investors who have never bought a stock before talking about how they put all their savings into Tesla.  Ugh.  Magazines like Popular Mechanics have some responsibility not to shamelessly tout a high-risk stock to naive investors.

For those who don't want to read my whole essay, the biggest problem at Tesla is that Musk has promised a lot of things, all of which take capital which it is increasingly clear Tesla does not have.  The promised Semi, pickup truck, coupe, solar shingle, China expansion, EU sales of the model 3, expansion of the sales and service network, bringing body shops in house, implementation of full self-driving -- not to mention repaying a growing accounts payable backlog and over a billion dollars in debt coming due in the next 6 months -- all will require billions of capital and Tesla is hitting bottom.  Musk claims he will be able to fund this with organic cash production but this almost has to be an outright lie.  He needs to raise equity, but has not done so when his stock was at all-time highs.  Now that he is in trouble with the SEC, rumors swirl that he may not be able to raise new capital.  If he cannot, Tesla will be bankrupt in 6 months or less.  Tesla might survive if it can find a white knight (though many of the obvious candidates have turned him down) but this is a lot of risk for noob investors to take on and a lot of risk to simply IGNORE in a Popular Mechanics puff piece.

Postscript:

By the way, is the balance problem on Elon Musk coverage really a dirth of hagiography? This is the man the press explicitly calls the real life Tony Stark.  If anything, he needs that guy referred to in the final seconds of the movie Patton, the person who rides with the Roman general during his Triumph and whispers in his ear that all glory is fleeting.  I have no problem talking about the wonderful things Musk has helped push forward (and I do) but good God aren't you obligated to also include stuff like this, out of his own mouth?

1/ This is crazy. Either this is a total BS excuse (which his $tsla fanboys will likely swallow) or Musk is the worst CEO of a $50 billion company I have ever heard of. $tslaq @TeslaCharts https://t.co/oeTfN9UaNU

— Coyoteblog (@Coyoteblog) October 18, 2018

You can click on the tweet and see my whole response, but eschewing 3rd party dealers and having its own sales and service network has been a Musk strategic pillar for 8 years.  The production ramp for the Model 3 is years behind.  And the CEO just looked at the map and realized they did not have enough service locations even for their less-than-expected sales?  This may be a great idea man and visionary and man who can get great efforts started, but this is not the tweet of a great, or even a good, CEO.

Just to save everyone from sending this to me, Elon Musk has been sued by the SEC.  The details are here, I will not go over all this old ground.  Of course this is just an accusation, and has no immediate effect (except to trash the stock price) until it is settled or proven in court.

I have such mixed feelings for Musk. On one level, it is awesome to see an entrepreneur trying to do build real stuff like rockets and cars. He has all the geeky charm of a 1970's edition of Popular Mechanics, breathlessly hyping captivating but sometimes impractical ideas.  I rode with an acquaintance in his $100,000 Tesla the other day and he loved it. Totally drank the Kool Aid.  Despite my extreme skepticism, he was sure that Elon was going to have same-day body shop repairs for Teslas and could make it work because they only had 3 models of cars with lots of shared parts.  It's the same sort of enthusiasm you see from people who still stand in line first day for the new iPhones. I envy being able to create that as a company.

On the other hand, Musk is just so unsuited to running a public company, is awful at operations, and will end up having cheated a lot of people.  He fails to meet commitments and makes public statements that are transparently absurd.  Just as one example, the other day in response to many delivery problems Tesla has (delivery problems that may actually be due more to efforts to shift 4Q sales into 3Q), Musk said there was a shortage of car delivery trucks and Tesla was starting to build them.  Seriously??? There is zero evidence of a delivery truck shortage and it is absurd to think Tesla had the time or the resources or the skills or knowledge to bang out large truck trailers (that require a variety of DOT inspections and approvals).  Honestly, I can't tell if Musk is the pointy-haired boss from Dilbert who promises absurd things because he is utterly clueless, or if Musk is totally corrupt -- it could be both.  I think his body shop insourcing idea was likely clueless but his SolarCity acquisition was corrupt.

New entries from Jaguar, Audi, and others demonstrate both that Tesla faces a lot of new competition but also that Tesla's original Model S and X still have a lead over competitors.  When the book on the electric car industry is written, I think it will be said that Tesla greatly accelerated the transition to electric cars.  But it is a fact of business history that the pioneer and innovator seldom is the ultimate victor (Lycos, Netscape, Altair, Yahoo, etc).  Tesla has not lost yet, but it still has a huge hill to climb.  Unfortunately, Musk's decisions to do so many things in-house -- own the dealer network, own the fueling network, own the manufacturing, own the body shops, etc. -- is going to require too much capital.

It is pretty clear that Musk is often using Apple as one of his models for what he wants to do with Tesla, and he has successfully created the same kind of almost cultish loyalty as has Apple.  But he ignored a lot of what Apple did.  Apple is a research, software, and design house.  It farms out manufacturing to a partner and sold most of its ipods and iphones initially through third party retailers.  If Tesla had done the same: taking advantage of rich third parties who already know how to sell cars as dealers; working with a consortium to create the fueling network; and going to someone like Kia to do private label manufacturing of the cars -- they might have lost something of the customer magic in the process but they also might be in a much better position to survive.

Update:  Apparently Musk was offered a very, very attractive settlement by the SEC which involved Musk stepping down as Chairman but NOT as CEO, adding a couple new directors, and paying a fine.  It is hard to read this as much more than a slap on the wrist, especially in the context of the SEC now seeking a full bar of Musk from any position at any publicly traded company (hell hath no fury like a government agency scorned).  Frankly, I find this nearly as impossible to understand as the fact that Tesla never raised any equity funding this year when its stock and story were so strong.  Tesla skeptics are arguing that both of these hard-to-explain events stem from the same cause -- that Tesla has some deep dark secret that Musk can't afford for either a new executive or a public offering document to disclose, the same secret (the story goes) that has driven away a number of senior accounting and finance officers in the last several months.  I agree that the existence of such a secret would explain the facts, but I can't imagine what could be much worse than the bad balance sheet and operational data that already is publicly known.

I promised I would not post any more Tesla for a while, and to some extent I am keeping that promise -- no updates here on the SEC investigation or the 420 tweet.  But since I have been critical of Tesla in the past, I thought I would acknowledge that there are good things in Tesla that could and should be saved.  The problem is that Tesla is saddled with a bunch of problems that are NOT going to be solved by going private.  In fact, going private could only make things worse -- given that Tesla already has too much debt and its debt is rated barely above junk bonds, piling on more debt just to save Elon Musk from short sellers is not a good plan.  Here is what I would suggest:

1. Find the right role for Elon Musk.  Musk HAS to be part of the company, without him its stock would go to about zero tomorrow.  But right now he is CEO, effective head of media relations, factory manager, and chief engineer.  Get him out of day to day management (and off Twitter) and hire real operating people who know what they are doing
2. Get rid of the dealerships.  Tesla tried to do something different, which is own all the dealerships rather than franchise them out.  This is fine if one has some sort of vision for doing sales and service differently, but Tesla really doesn't.  It does the same things as other car dealerships but just slower since it has not been able to build out capacity fast enough.  And this decision has cost them a tons of growth capital they desperately need, because they have had to build out dealerships most car companies get for "free" because the capital for the dealerships is provided by third-party entrepreneurs.  Also, the third-party entrepreneurs bring other things to the table, for example many of them tend to have experience in the car sales business and a high profile in their local markets with government and media.
3. If possible, find a partner for the charging network.  All traditional car companies get their fueling networks for free because the network is already built out by the oil companies.  Tesla is building its own, and again this is sucking up a lot of capital.  It is also dangerous, because Tesla has chosen to pursue a charging standard that may not become the industry standard (this is already happening in Europe) and Tesla risks being stuck with the betamax network.  Tesla should see if it can shift this to a third party, perhaps even in joint venture with other EV companies.
4. Do an equity raise.  To my mind, it is absolute madness Tesla did not do this earlier in the year.   Their stock was trading at $350 and at a $50+ billion valuation at the same time they were burning cash cash at a rate of $3 billion or so a year.  Musk says he can skate through without more capital but he has said this before and it was not true.  Given the enthusiasm for his stock, there is just no reason to run cash poor when there are millions of Tesla fanboys just waiting to throw money at the company.  Even a $5 billion raise would have been only 10% dilution.  Musk says he wants to burn the shorts but ask any Tesla short out there what they would most fear, and I think they would all say an equity capital raise.  $3-5 billion would get Tesla at least through 2019 no matter how bad the cash burn remained and give the company space to solve its operational problems.
5. Get someone who knows how to build cars building the cars.  I have written about this before -- it is always hard when you are trying to be a disruptor of an industry to decide what to disrupt and what industry knowledge to incorporate.  In retrospect, Musk's plan to ignore how cars are built and do it a different way is not working.  Not only are the cost issues and throughput issues, but there are growing reports of real quality issues in model 3's.  This has to be fixed ASAP.
6. Bring some sanity to the long-term product roadmap.  This may be a bit cynical, but Tesla seems to introduce a new product every time Musk needs to divert the public's attention, his equivalent of yelling "Squirrel!"  There is the semi, a pickup truck, a roadster and probably something else I have forgotten about.  Even the model 3 lineup is confusing, with no one really knowing what Tesla is going to focus on, and whether the promised $35,000 model 3 will ever actually be built.  This confusion doesn't work well with investors at all, but Tesla has been able to make it work with customers, increasing the buzz around the company because no one ever seems to know what it will do next.  But once real competitors start coming out from GM, Volvo, Jaguar, BMW and others, this is not going to work.  Customers that are currently captive to Tesla will have other options.    Let's start with the semi.  The demo was a beautiful product, but frankly there is no way Tesla is going to have the time or the money to actually produce this thing.   Someone like Volvo is going to beat them to the punch.   They need to find a JV partner who can actually build it.

Update:  If I had a #7, it would be: Invent a time machine and go back and undo the corrupt SolarCity buyout, in which Tesla bailed out Musk's friends and family and promptly proceeded to essentially shut down the company.  Tesla shareholders got nothing from the purchase except a lot of debt.

Matt Levine of Bloomberg has many of the same guesses I made the other day (here on the transaction Musk likely wants, and here on how might paper over his lie about "funding secured").  Levine writes:

The intermediate possibility is that there is some sort of deep misunderstanding, that when Musk tweeted about “taking Tesla private at $420” and having “funding secured,” he didn’t mean what you and I and the SEC normally interpret those words to mean, which is that he would make a binding offer to buy any Tesla shares not owned by Musk and his financing partners for $420 a share in cash.He meant something more like: He would like to not be subject to the obligations of being a public company anymore, and it would be nice if there was a way to do that. After all Musk immediately followed up by tweeting about letting shareholders continue to own their shares in a “private” Tesla, which is not how going-private transactions normally work. There has been a lot of speculation about how that could be done, and I remain a bit skeptical, but the important point here is that if Musk believes that (1) there is actually a way to “go private” while keeping all of his existing shareholders and (2) most of his existing shareholders love him and would prefer to stay private with him, then he could rationally believe that he doesn’t need much financing. If no one will take the cash, then you don’t need any cash. Both of those things are kind of weird things to believe, but neither of them seems impossible for Musk to believe.

If I were Musk’s lawyer, and if he doesn’t actually have $80 billion of financing locked up, I’d be working on a termsheet for the board that (1) offers Tesla shareholders the choice between (A) $420 in cash or (B) shares in a new special-purpose-vehicle that will hold shares in a private Tesla (or whatever your plan is to let people hold on to their shares); (2) limits the cash consideration to, like, $5 billion, or whatever Musk can actually raise; and (3) has some sort of proration mechanism in case more people choose the cash than he can afford. Does this fit with the spirit of the going-private transaction that Musk tweeted about? No, absolutely not, not even a little bit. But it is … something. And then let the special committee reject it, and then quietly walk away and say “well no we were serious about the buyout proposal but it just didn’t work out.” Which is a much better position to be in than walking away saying “oh yeah sorry we were kidding about that.”

@Elonmusk is facing real blowback for his management buyout by tweet the other day, in particular for two words:  "funding secured."  Many, including myself, doubt he really had tens of billions of dollars of funding secured at the time, particularly since all bankers and likely sources of funding as well as most large Tesla shareholders had never heard of any such transaction when contacted by the media.  The SEC is now looking into this and other Musk corporate communication practices.  If he lied in the tweet, perhaps to get revenge on the short-sellers he hates with an irrational passion, he could be in deep, deep legal poop, up to and including jail.

Let's play a game.  Let's assume he did NOT have funding secured at the time he tweeted this, and now is running scared.  What can he do?  One ace he has is that the board is in his pocket and (I hate to be so cynical about this) will likely lie their asses off to cover Musk.  We already saw the dubious letter the other day, from "members of the board" rather than officially from the board, attempting to provide cover for Musk's tweets.  This is not just a crony thing -- it is entirely rational for the company to defend Musk.  He is, in my opinion, a terrible executive but he is the avatar that drives the fan boys and the stock price.  The day that Musk leaves is the day that the company can really get its operational house in order but it is also the day the stock trades under $75.

So what can Musk do?  Well, the first defense might be to release a statement like "when I said funding secured, I was referring to recent conversations with ______ [fill in blank, maybe with Saudis or the Chinese, call them X] and they told me that if we ever were looking for funds they would have my back."  This is probably the best he could do, and Tesla would try to chalk it up to naivete of Mr. Musk to accept barroom conversation as a firm commitment.  Naivite, but not fraud.   I don't have any experience with the Feds on this kind of thing but my guess is that the SEC would expect that the CEO of a $50 billion public company should know the rules and legally wasn't allowed to be naive, but who knows, the defense worked for Hillary Clinton with her email servers.

But this defense is MUCH MUCH better if, in the next day or so, Tesla can announce a deal with X on paper with signatures.  Then Musk can use the same defense as above but it has much more weight because he can say, see, they promised funding and I believed them when they said they had my back and here they have delivered.

The problem with this is it would be really a deal being crafted for tens of billions of dollars on a very short timeframe and with limited negotiating leverage (X will know that Musk NEEDS this deal).  As a result, the deal is not likely to be a very good one.  X will demand all sorts of extraordinary provisions, perhaps, for example, a first lien on all Tesla IP and a high breakup fee.  I picture this more like the negotiation for bankruptcy financing, and in fact the IP lien was part of the financing deal Theranos made when it was going down the drain.  But put yourself in Musk's shoes -- jail or bad deal?

And likely his conscience would be clear because this deal would be killed quickly by shareholders.  That would be fine, because the purpose of the exercise would be to keep Musk out of jail, not to actually buy the company.  Tesla shareholders will still get hosed, probably having to pay some kind of break-up fee which any sane investor X would insert as the price for participating in this farce.  And we will go back to the starting point of all this, which is Tesla being public and focusing on operational improvement in what may be the most important operational quarter in its history.

Disclosure:  I have in the past been short Tesla but have no position in it now (I did short when trading reopened the other day after Musk's announcement but covered this afternoon).  I am not in any way, shape, or form giving any financial advice you should spend actual money backing.

Jeff Skilling was convicted of fraud and fined $50 million dollars and given 20+ years in jail.  Elizabeth Holmes -- for fraud that is way more obvious and for which she is clearly directly accountable -- will get no jail time, a fine of a half million dollars, loss of some voting shares in the company, and a ten year moratorium on being a director or officer of a public company.  From the SEC press release:

The complaints allege that Theranos, Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product – a portable blood analyzer – could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood testing industry.  In truth, according to the SEC’s complaint, Theranos’ proprietary analyzer could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analyzers manufactured by others.

The complaints further charge that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014.  In truth, Theranos’ technology was never deployed by the U.S. Department of Defense and generated a little more than $100,000 in revenue from operations in 2014.

These are only the highlights of the many, many repeated knowingly grossly fraudulent statements made by Holmes over a span of several years, and this does not even include her harassment of whistle blowers who tried to go public with the fraud.  This isn't a case of creating an offshore JV that shifted some debt off the balance sheet -- its the case of lying blatantly about the company's technology and financials for years and years.

Update:  6/15/2018 Holmes criminally indicted for fraud.  I should have listened to Ken White at Popehat -- he always says that the wheels of justice in the US Attorney's office grind slowly, but they do eventually make progress.

NY state attorney general (and others) pursuing potential criminal and civil charges against ExxonMobil for its climate change advocacy

US Virgin Islands AG (really) going after non-profit CEI for its climate change advocacy

Elizabeth Warren wants the SEC to ban companies from "saying whatever they want about Washington policy debates," a demand inspired by her frustration that financial firms are publicly disagreeing with her on the impact of her desired regulations

California AG Kamala Harris demanding non-profit donor lists, presumably so she can harass and intimidate the ones she does not like

California AG Kamala Harris has raided the home and seized video footage of an independent advocated/journalist  who did secret sting videos of Planned Parenthood, the exact same sort of advocacy journalism pursued legally (without legal harassment) by any number of Leftish groups in California and elsewhere  (I doubt Ms Harris plans to raid the home of PETA activists who trespass on farms to secretly film chicken and pig breeding).

It turns out there are strong speech protections in this country, except when you are a professional, and then there are none.

And of course, I still am fighting against a libel lawsuit meant to force me to remove this product review.

Update, add this one:  Tenured Marquette professor faces termination based on blog post with which University disagrees

When the student replied that he has a right to argue his opinion, Ms. Abbate responded that “you can have whatever opinions you want but I can tell you right now, in this class homophobic comments, racist comments and sexist comments will not be tolerated. If you don’t like that you are more than free to drop this class.” The student reported the exchange to Marquette professor John McAdams, who teaches political science. Mr. McAdams also writes a blog called the Marquette Warrior, which often criticizes the Milwaukee school for failing to act in accordance with its Catholic mission.

Mr. McAdams wrote on his blog that Ms. Abbate was “using a tactic typical among liberals now. Opinions with which they disagree are not merely wrong, and are not to be argued against on their merits, but are deemed ‘offensive’ and need to be shut up.” His blog went viral, and Ms. Abbate received vicious emails. She has since left Marquette.

But now Marquette is going after Mr. McAdams. In December 2014, the school sent him a letter suspending his teaching duties and banning him from campus while it reviewed his “conduct” related to the blog post. “You are to remain off campus during this time, and should you need to come to campus, you are to contact me in writing beforehand to explain the purpose of your visit, to obtain my consent and to make appropriate arrangements for that visit,” Dean Richard Holz wrote.

Lol, the university is going to prove he was wrong to write that universities avoid dialog in favor of saying "shut up" by telling him to  ...  shut up or be fired.

By the way, since nowadays it seems that supporting someone's free speech rights is treated the same as agreeing with that person, I will remind folks that having led a pro gay marriage ballot initiative briefly in Arizona, I am unlikely to agree with someone who thinks it should be banned.  But so what?  I would have absolutely no problem arguing with such a person in a rational way, something that faculty member Ms. Abbate seemed incapable of doing.  While I might disagree with him on any number of issues, Professor McAdams was totally right to call her out.  Besides, is the Left's goal really to take all opinion with which they disagree and drive it underground?  Force folks underground and you never know what will emerge some day.  Things like.... Trump supporters.

It is amazing to me that universities have become the least viable place in the US to raise and discuss controversial issues in the light of day.

Over at Forbes, I wrote this week about Bitcoin mining.  But don't be immediately put off.  This is not yet another article by a crazed libertarian and Cryptonomicon fan on the miracle effects of digital currencies.  Instead, I look at the crazy economics and absurdly steep capacity and technology curves of Bitcoin mining.  An excerpt:

Let’t take an example, and consider the Cointerra TerraMiner IV, a 2TH/sec machine priced at about $6000 which if purchased today would be delivered sometime in February, or about 3 months from now.  At current difficulties and exchange rates, such a machine would pay back its purchase price in less than a week, producing over $25,000 a month in Bitcoins.

A no-brainer, right?  But Bitcoin mining difficulty has been going up of late by a factor of 10 every 3 months.  Based on a mining difficulty ten times greater than today and current exchange rates, we could expect instead to be making at delivery something more like $575 a week.   Three months later we would be making a tenth of that.  If we factor in the costs of electricity, this machine will never cover its costs at current Bitcoin exchange rates.

I do not think I have ever seen a business technology obsoleted so quickly.  Essentially, the next generation of mining processors will be virtually obsoleted between the time of its sale and its delivery 3 months later.  Every three months one has to reduce his production costs by a factor of 10, in a business where cost reduction basically means throwing out all one’s existing capital assets and buying expensive new stuff.

From Edward Pinto at the American

Fannie and Freddie entered into agreements accepting responsibility for misleading conduct discovered by the SEC, including:

1.    As of June 30, 2008, Freddie had $244 billion in subprime loans, while investors were told it had only $6 billion in subprime exposure.

a.    Freddie knew it was inadequately compensated for the risks it was taking. For example, it was taking on “subprime-like loans to help achieve [its] HUD goals” that were similar to private fixed-rate subprime, but the latter typically received “returns five to six times as great,” says the complaint.

b.    Freddie had concerns about risk layering on loans with an LTV >90% and a FICO <680. (Yet, in Freddie’s disclosures it only noted risk layering concerns on loans with an LTV >90% and a FICO <620. This is a major difference since only 10 percent of its loans fell into the LTV >90% and a FICO <620 category, while nearly half fell into the LTV >90% and a FICO <680 one.)

2.    As of June 30, 2008, Fannie had $641 billion in Alt-A loans (23 percent of its single-family loan guaranty portfolio), while investors were told it had less than half that amount ($306 billion, or 11 percent of its single-family loan guaranty portfolio).

3.    The SEC complaint disclosed that Freddie had a coding system to track “subprime,” “other-wise subprime,” and “subprime-like” loans in its loan guaranty portfolio even as it denied having any significant subprime exposure.

These suits are important because they demonstrate that Fannie and Freddie “told the world their subprime exposure was substantially smaller than it really was … and mislead the market about the amount of risk on the companies’ books,” said Robert Khuzami, director of the SEC’s Enforcement Division.

The recent naming of GE's Jeffrey Immelt to head a presidential commission on, err, something or other seems to have been an occasion for bipartisan gnashing of teeth about what I call the growth of the American corporate state.  I was encouraged by the bipartisan negative reaction from the left, right, and of course the libertarians, the latter of whom have always understood the difference between being pro-capitalism and pro-business.

But all it takes is a nomenclature change of this corporate welfare to "green jobs" or "investment in the future" or "bridge to the future" or similar bullsh*t and suddenly many of the exact same people, at least on the left, are swooning again.  Why is it not obvious that, for example, green energy subsidies are just the same old corporate welfare?

Here is one aggravating example

Despite millions in government grants and subsidies, the Manitowoc company President Barack Obama called a glimpse of the future lost $4.2 million last year and cannot promise shareholders it will be profitable in the foreseeable future....

“We may continue to incur further net losses and there can be no assurance that we will be able to increase our revenue, expand our customer base or be profitable,” the report indicates.

Investors have responded to the company’s volatility, and Orion stock has plummeted in the past four years.  It closed 2007 at $18.82 a share.  By the end of 2010 it was $3.34.

Regardless, President Obama is putting his, and the U.S. taxpayers’, money on companies like Orion.

“It’s important to remember that this plant, this company has also been supported over the years not just by the Department of Agriculture and the Small Business Administration, but by tax credits and awards we created to give a leg up to renewable energy companies,” Obama said at the Orion plant on Wednesday.

The State of Wisconsin has also given its share trying to help Orion to succeed.  Since 2005, the state has given the company $350,000 in community development zone tax credits, $506,000 in economic development funds, and $420,000 from the Wisconsin Energy Independence Fund.  Plus the company got another $260,000 in stimulus funds for a State Energy project.

In addition to direct aid, public policy has also helped the struggling company.  Wisconsin law requires that 10 percent of all electricity sold in the state come from renewable sources by 2015.  Orion knows that without government intervention like that, there would be little prospect for the green economy.

“The reduction, elimination or expiration of government mandates and subsidies or economic or tax rebates, credits and/or incentives for alternative renewable energy systems would likely substantially reduce the demand for, and economic feasibility of, any solar photovoltaic and/or wind electricity generating products, applications or services and could materially reduce any prospects for our successfully introducing any new products, applications or services using such technologies,” the SEC report states.

By the way, in 2010, while the government was pouring taxpayer money into Orion, its founder and CEO was pulling his out, selling (by my count of SEC filings) 130,000 shares, despite equity prices that were at a five year low.    It is dangerous to draw conclusions form insider sales (we don't know what personal financial issues may be driving their actions) but it is interesting that the president and founder is taking the exact opposite point of view on the company's prospects than is President Obama.

The government is the first organization, given its unique powers to use force against citizens, that should be subject to surveillance and transparency.  Unfortunately, since it is the government itself that sets the rules, it is usually the last.  Following in the tradition of a Congress that exempts itself form most of its workplace regulation, comes the new financial bill which apparently exempts the SEC from most public scrutiny

Under a little-noticed provision of the recently passed financial-reform legislation, the Securities and Exchange Commission no longer has to comply with virtually all requests for information releases from the public, including those filed under the Freedom of Information Act.

The law, signed last week by President Obama, exempts the SEC from disclosing records or information derived from "surveillance, risk assessments, or other regulatory and oversight activities." Given that the SEC is a regulatory body, the provision covers almost every action by the agency, lawyers say. Congress and federal agencies can request information, but the public cannot.

That argument comes despite the President saying that one of the cornerstones of the sweeping new legislation was more transparent financial markets. Indeed, in touting the new law, Obama specifically said it would "increase transparency in financial dealings."

Apparently the children of the sixties, who once pushed for the Freedom of Information Act as a check to those in power, now are rolling it back once they are in power themselves.

This makes no sense to me.  The SEC is working to protect Dell shareholders by ... taking $100 million of their money.

From the SEC web site (via frequent contributor LK)

The Securities and Exchange Commission today voted to provide public companies with interpretive guidance on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change.

I haven't seen anyone explain the reason for this requirement, so I thought I would do so.  Companies know that no real investor is going to pay any attention to these climate disclosures, so to avoid any future action accusing them of not being forthcoming enough, companies are going to go overboard outlining potential risks far beyond what they think is likely.  These exaggerations will protect them from the SEC while at the same time having no effect on their stock price.  Then, alarmists will collate all of these and use them as evidence of the high cost of climate change, saying "see, look at what all these public companies are saying climte change will do to them."  Lacking any evidence of harmful climate change in the actual climate or economy, this is one way to manufacture fake evidence.

By the way, here is the diclosure every oil company should put in their reports:

Notice:  Poplist politicians are very likely to demagogue this company for a wide-range of imagined crimes in an attempt to get re-elected, including crimes against the climate in various forms.   Politicians will attempt to preferentially saddle this company with new taxes and regulations given that this company is not liked by many voters (despite the fact that many of these voters freelydo business with this company).  Politicians will likely continue to try to sieze portions of this company's earnings, despite the fact that those earnings are relatively low given the magnitude of the our investments and the amount of value we add.

Harvard Business School has (or at least had in 1987) its own equivalent of the show Big Brother.  During the first year, a new student gets locked in a classroom for a year with 88 other high-strung, type-A overachievers in an explicitly zero-sum process (there are a fixed number of each grade to be handed out) conducted by sometimes sadistic professors bent on eeking out the maximum amount of stress, fear, and verbal conflict.  Think John Housman's class in the movie "Paper Chase."  Students for some reason react to this process by, instead of branching out and meeting the other 800 students in the class, spending most of their social time with these same 88  (the rugby team saved me to some extent from such narrowness).

By no means are all these folks my "friends," in part because I have a fairly limited definition of that word, but they all became pretty close associates.  I knew most all of them pretty well -- well enough that both the couple that ended up in jail and the couple that became spectacularly successful were no real surprise.

One of those 88 I spent a year with was a guy named Jim Balsillie, now famous as billionaire CEO of RIM (Blackberry) and, more recently, for trying to buy an NHL franchise.  Jim is not a close friend, and in fact I probably haven't exchanged a hundred words with him since we graduated.  But over the period of a year I feel like I had the measure of him, as quiet, bright, kind and fairly humble.   Jim was a much, much nicer guy than I was -- certainly I was far, far more likely in class to rip into another student for being an idiot in class discussion.   I once got so frustrated with a teacher that I went to the front of class and took over.  I can't even imagine Jim doing something like that.

I write this all because I just have to make a public statement concerning a recent statement about Jim Balsillie by the NHL.  The NHL recently chose to vote against letting Balsillie buy the Phoenix Coyotes.  Fine.  I think they are idiots - they should be begging to have a guy of his talents and money in their fraternity - but whatever.  What ticks me off, though, is that instead of dicussing the controversial business reasons for the vote and they choose to smear Jim:  (via Market Power)

"We voted to deny approval to Mr. Balsillie because we concluded he lacks the good character and integrity required of a new owner" under NHL bylaws, said Boston Bruins Owner Jeremy Jacobs, chairman of the league's board of governors.

I suppose it is possible that Jim is some kind of evil smiling sociopath and managed to fool 88 of us for over a year, despite living in close proximity.  I seriously doubt it, but it is remotely possible.  But even if that were the case, there is no way the NHL suddenly figured this out when those who know him better have not.

Matt Nestor has some fun with this:

The NHL owners are obviously good judges of character. Some that have been approved:

● William "Boots" Del Biaggio (Nashville Predators), now headed to jail on fraud charges.

● Henry Samueli (Anaheim Ducks), now awaiting sentencing on SEC violations.

● John Rigas (Buffalo Sabres), currently in jail on embezzlement charges.

● Sanjay Kumar (New York Islanders), now serving time for conspiracy.

● John Spano (Islanders), who deliberately misled the NHL and the Islanders about his net worth.

● Bruce McNall (Los Angeles Kings), who pleaded guilty to conspiracy and defrauding six banks of $236 million.

Why would you want a successful businessman to taint such a group?

Jeff Skilling of Enron essentially sits in jail for being too publicly optimistic about his company's prospects in the face of a liquidity crisis  (despite popular perceptions, he was not convicted for accounting issues associated with off balance sheet entities).

I didn't follow the trial that closely, but my sense is that Skilling denied this charge.  But even if he had admitted it, it strikes me that he would have had an interesting case in his favor.  US securities law takes as an absolute core principle that relevant information must always be disclosed quickly and completely to both shareholders and potential shareholders alike.  It presumes that total openness is the best way to serve shareholders.

But in a short-term liquidity crisis, openness is the kiss of death.  As we have seen over the last 6 months, the merest hint that a liquidity crisis may exist at a company creates a real crisis, even if one did not exist before.  Liquidity crises are crises of confidence among short-term lenders, and the only way to fight such a crisis is to build confidence.  So what happens if the best way to serve shareholders is to keep silent about problems?  What if the best way to fulfill one's fiduciary responsibility to maintaining shareholder value is to be overly rosy in one's pronouncements during difficult times?

Fast forward to the Bear Stearn failure last year, from the Economist:

As recently as March 12th, Alan Schwartz, the chief executive of Bear Stearns, issued a statement responding to rumours that it was in trouble, saying that "we don't see any pressure on our liquidity, let alone a liquidity crisis." Two days later, only an emergency credit line arranged by the Federal Reserve was keeping the investment bank alive. (Meanwhile, as its share price tumbled on rumours of trouble on March 17th, Lehman Brothers issued a statement confirming that its "liquidity is very strong.")

And now, we hear that the Federal Government urged Bank of America's Kenneth Lewis to do exactly what Lay and Skilling were convicted of.

Federal Reserve Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co. -- a deal that later triggered a government bailout of BofA -- according to testimony by Kenneth Lewis, the bank's chief executive.

Mr. Lewis, testifying under oath before New York's attorney general in February, told prosecutors that he believed Messrs. Paulson and Bernanke were instructing him to keep silent about deepening financial difficulties at Merrill, the struggling brokerage giant. As part of his testimony, a transcript of which was reviewed by The Wall Street Journal, Mr. Lewis said the government wanted him to keep quiet while the two sides negotiated government funding to help BofA absorb Merrill and its huge losses.

Federal Reserve Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co. -- a deal that later triggered a government bailout of BofA -- according to testimony by Kenneth Lewis, the bank's chief executive.

Mr. Lewis, testifying under oath before New York's attorney general in February, told prosecutors that he believed Messrs. Paulson and Bernanke were instructing him to keep silent about deepening financial difficulties at Merrill, the struggling brokerage giant. As part of his testimony, a transcript of which was reviewed by The Wall Street Journal, Mr. Lewis said the government wanted him to keep quiet while the two sides negotiated government funding to help BofA absorb Merrill and its huge losses.

Many observers found it odd when Skilling was convicted of giving false information to shareholders but not for insider trading.  The implication, then, was that Skilling was guilty of lying to shareholders but not for personal gain.  Why then, people asked, did he do it?  It is becoming increasingly clear that putting on a happy face during an impending liquidity crisis is the only responsible approach for a leader to take.  Whether he goes to jail for it or gets rewarded by the Feds for it comes down to, what?  PR?

Update: In fact, one can argue that the Enron situation is more honorable than the BofA situation.  Enron management was trying to protect the value of Enron shareholders.  In the case of BofA, the feds demanded that BofA management hide information in order to complete a transaction that BofA shareholders might rightly oppose.

TJIC gives Meaghan Cheung -- who was chief of the enforcement division for the NYC branch of the SEC when Madoff was first investigated but who now claims to be an anonymous bureaucrat; and who ignored a number of detailed whisteleblower accounts that something was not right in the state of Madoff back in 2006; and who signed the report giving Madoff the "all clear, keep sending him your money" finding-- exactly as much sympathy as she deserves.

I got another boiler room broker call today, so I guess the recent downturn has not flushed out all the cockroaches.  A while back I discussed the frequent calls I get from boiler room stock promoters.  The approach they use with me is this:

So the other day, I accidentally let one of them go further than I usually allow.  He said he was from Olympia Asset Management.  (There is an Olympia Asset Management web page, but I don't know if it is the same company and the web page has not been updated for several years.)  I let him run for a bit because a friend of mine runs a very well-respected financial planning firm with a different name but also with Olympia in the title, and for a moment I thought it might have been one of his folks.

Anyway, he proceeds to try to convince me that we have talked before and discussed a certain security.  "Remember me, we talked six months ago about ____".  Of course, I had never heard of the guy.  At this point I usually hang up, because I have heard this crap before -- it is a common pitch.

Its pretty clear to me now that this is what he is doing:

1. Trying to imply that we have some kind of relationship we actually don't have.  Or worse...
2. Trying to convince me that he touted stock A six months ago, so now he can tell me stock A has gone up in price.  Many reputable brokers built their reputation by cold calling people and saying:  Watch these 3 stocks and see how they do and I will call you back in 6 months.  That way, you can evaluate their stock picking without risk.  The modern sleazy approach is to pick a stock that has gone up a lot in the last 6 months, and then call some harried business person and pretend you called them with that pick 6 months ago, hoping that they will give you the benefit of the doubt.

The call just went downhill from there.  I hung up after his discussion of throwing Molotov cocktails into the cars of people he doesn't like.  That was right after I asked him if Tony Soprano was standing beside him listening in on the call.

Anyway, beware.  The guy today called me and asked me if I remembered him calling 6 months ago predicting the downturn in the mortgage market and the crash of the financial stocks.  You are not crazy - no matter how certain the guy seems, you really did not talk to him 6 months ago.

By the way, I am not the only one getting this pitch.  Ed Moed got the same pitch from the same script from the same company.  Many of his commenters share similar experiences.

Update: Wow, they sure do like Mitt Romney over at Olympia Asset Management.  I'm sure there was no arm-twisting here, when every single employee of the company seems to have given the max donation to the same candidate, with no breaking of ranks.

Update #2: Mike Murphy, CEO of Olympia Asset Management, was "a member of the [Hoffstra's] elite football team."  Wow.  Remember that time Hoffstra ripped through all those SEC teams?  Yeah, neither do I.  Anyway, this achievement does not hold a candle to the fact that I was once captain of Princeton Tower Club's elite intramural coed field hockey team.

While I am not happy to see a historic company go bankrupt, and have vague but unspecific worries about some kind of general cascading financial problem, I am happy to see the government let Lehman go bankrupt without any sort of special intervention or bailout for a number of reasons:

• Bailouts create awful incentives for other large companies managing their risk portfolios
• I know many small business people who have gone bankrupt, and I once lost my job in a company bankruptcy.  There is no reason Lehman equity holders and managers should be immune from the same process just because their company is large and old. 
• Lehman's management has failed to get a positive return from the assets in their care.  A bailout only keeps these assets under the same management.  A bankruptcy puts these assets in the hands of new parties who hopefully can do a better job with them. 
• I strongly suspect that the hole in Lehman's balance sheet from underwater assets like certain mortgages is large compared to its equity but small compared to its total assets.  If this is true, equity holders will end up with nothing, but most creditors should come out close to whole when everything is unwound.

Like Megan McArdle, I found Obama's recent reaction to the Lehman bankruptcy to be wrong-headed but unsurprising.  Obama is blaming recent financial problems on an overly laissez faire approach by GWB in general (LOL,that's funny) and a lack of strong enforcement by the SEC in particular. 

But one has to ask, what laws were not enforced?  My sense is that these are all perfectly lawful portfolios of mortgages in which the one mistake was systematically being too generous in giving out credit.  Mr. Obama's party has always been a strong advocate of pushing banks to be more generous with credit, particularly to the poor, and of promoting home ownership as a national goal.  If anything, financial institutions are struggling because they were too aggressive in these goals.  McArdle writes:

This was not some criminal activity that the Bush administration should
have been investigating more thoroughly; it was a thorough, massive, systemic
mispricing of the risk attendant on lending to people with bad credit.
(These are, mind you, the same people that five years ago the Democrats
wanted to help enjoy the many booms of homeownership.) Lehman, Bear,
Merrill and so forth did not sneakily lend these people money in the
hope of putting one over on the American taxpayer while ruining their
shareholders and getting the senior executives fired.  They got it
wrong.  Badly wrong.  So did everyone else.

It appears from further Obama statements talking about lack of enforcement for predatory lending laws that the Democrats want to get back on the rollercoaster of whipsawing banks between charges of redlining (you are not lending enough to the poor) and predatory lending (you are lending too much to the poor).

Postscript:  While in retrospect there may turn out to have been laws broken, in situations like this, particularly when a management team is trying to head off a liquidity crisis, these tend to be of the reporting and disclosure ilk.  We saw back during the Enron failure that people tend to assume law-breaking of some sort to be the cause of a major bankrupcy or collapse, and to satisfy this notion the government aggresively pursued Enron executives.  But nothing for which Enron was prosecuted had anything to do with their failure -- all the violations were about disclosure and accounting methodologies.  The company would have still crashed, probably faster, without these violations.

Update:  More here

New SEC rules being drafted by the Bush administration are set to declare that Paris Hilton is a fully "accredited investor" with full freedom to invest in any way she likes.  I, who graduated near the top of my class at Harvard Business School, shall likewise be declared not capable of investing and the government will limit my options "for my own good"

The U.S. Securities and Exchange Commission (SEC) has just proposed
that the amount of liquid net worth an individual must have before
investing in hedge funds and other so-called risky investments be
raised to as much as $2.5 million.

The largest program the government has for protecting us from our own investing incompetence is called Social Security, which takes retirement savings from us by force and has the government invest it for us.   As I showed in previous posts, Social Security is returning -0.8% a year on our savings.  Thank god the government is investing this money for us - no way I could have beaten a -0.8% a year return during the greatest 20-year bull market of all time.

Tinfoil Hat Observation:  I use Google search to find old posts on my site.  Usually it is flawless.  For some reason, though, my post titled Social Security Ripoff is not indexed by Google.  A follow-up post on the same day is indexed, as you can see from this search, but not the original.  I have never failed to pull up a post before, even with inexact search words, and have never failed with the exact title in the search.  Weird.   Maybe something in the comments, I will have to check.

I posted on shareholder suits over at Overlawyered.  A reader sent me this great article from 2000 in Fortune on Bill Lerach, the kind of shareholder suits.  These thoughts echo my own (or, since I guess this was written long before my post, my thoughts echoes these):

Stanford law professor Joseph Grundfest, a former
SEC commissioner, goes so far as to describe the current system governing
securities fraud as "nuts." As he sees it, class-action settlements amount
to nothing more than an unproductive "transfer payment" from current shareholders
to past shareholders--with big contingency fees skimmed off the top. "The
plaintiffs lawyers are getting a cut of the money that flows from our left
pocket to our right pocket," he says. Even in those cases involving genuine
wrongdoing, he adds, the individual perpetrators rarely pay anything out
of their own pockets, thanks to insurance and indemnification policies.
Nor do the shareholders get much--generally no more than 15% of their losses,
studies show. "Fraud is wrong," says Grundfest. "It has to be punished.
But what we have here is a shell game."

Read the whole article.  In many of the anecdotes, Lerach seems to be channeling Tony Soprano.

A while back, I wrote the Porkbusters post on Arizona farm subsidies, which are mainly cotton subsidies.  Cotton gets subsidized both with direct farm subsidies as well as price-subsidized water (this is a desert, after all, and unlike Egypt we don't have the Nile running through it).

Porkopolis is on the case with a further potential subsidy, as the US Government is apparently transferring a valuable piece of Phoenix commercial real estate to Arizona cotton growers:

A review of the final bill passed by both the House and the Senate shows that Senators DeWine and Voinovich, along with 97 other Senators,
voted for a provision that transfers a federal facility and surrounding
land to the Arizona Cotton Growers Association and Supima:

SEC.
783. As soon as practicable after the Agricultural Research Service
Operations at the Western Cotton Research Laboratory located at 4135
East Broadway Road in Phoenix, Arizona, have ceased, the Secretary of
Agriculture shall convey, without consideration, to the Arizona Cotton Growers Association and Supima all right, title, and interest of the United States in and to the real property at that location, including improvements.

They've got a very deep investigative report. 

Aspiring Governor, self-proclaimed substitute for the SEC, and enemy of Antarctica Eliot Spitzer is about to start a criminal trial against Dick Grasso, former head of the NY Stock Exchange (NYSE). 

And I have no idea why. 

Certainly it has something to do with Mr. Grasso's pay, which Mr. Spitzer thinks was too high.  The NYSE, for those who may be confused, is a private institution owned by some of the richest and supposedly financially savviest people in the country.  The owners or seat-holders select a board of directors, who in turn approved Mr. Grasso's pay package.  I imagine that there are folks who think that the stock exchange is a public institution or uses public money, but it is not and does not, though it does have some quasi-regulatory responsibilities.

The best I can figure it, Mr. Spitzer is arguing that Mr. Grasso somehow tricked these babes-in-the-woods on the board, which include naive and inexperienced people such as CEO's of Fortune 50 companies, heads of investment banks and brokerage firms, and a former US Secretary of State.  Now, I can imagine that the government might have an interest if Mr. Grasso somehow cooked the books to inflate his pay fraudulently.  In fact, the director of HR has admitted he did not give the board all the relevant information, but board members have already said that they did not rely on this person for their information.  Remember that most of the folks on the board themselves get paid in a similar league as Mr. Grasso's pay, so most saw it as a competitive offer, at least until negative publicity caused all the cockroaches to run for cover.

So Mr. Spitzer is starting criminal proceedings against people who he thinks negotiate too well for themselves or are paid more than they are worth.  I am sure glad he wasn't doing this 15 years ago.  I remember getting hired as a new Business school grad at McKinsey & Co. as a consultant for some ridiculous amount of money, and thinking "I can't be worth that!  I don't know anything!  Are they really paying me to tell experienced CEO's what to do?"  Boy, what panic I would have had if I had known there was an AG out there looking to send overpaid people to jail!

The WSJ has a really fascinating editorial that I will link to, though a paid subscription is required (update:  Try this link instead, it may get you there free or maybe here).  The overall picture is one of, if there was a crime at all, the wrong people are on trial.  Here is a taste:

In early June of 2003, when the
membership of the [NYSE] compensation committee changed, the Webb interviews
begin to tell a story of wider board dysfunction. And if there was a
screw loose in this new operation it appears to be not Mr. Langone --
who by all the interview accounts ran a tight ship -- but his
successor, [former New York State Comptroller Carl] McCall. This is a vital point, given that Mr. Spitzer, a
fellow Democrat, did not name Mr. McCall in his lawsuit. What toppled
Mr. Grasso was not the $139 million payment the board approved in
August of 2003 but the later news that Mr. Grasso was owed $48 million
more. Many board members said they didn't know about this payment and
for that many blame Mr. McCall.

The interview notes are rife with comments that Mr.
McCall had little inclination or ability to understand the contract he
took over negotiating. An outside consultant, William Mischell, said
that when he and Mr. Ashen explained the contract to Mr. McCall, "the
meeting . . . lasted somewhere between 15 to 30 minutes, with McCall
making or taking phone calls throughout and not really focusing on the
details." Mr. McCall himself told investigators that "the subject of
executive compensation was entirely foreign to him" -- yet he refused
offers of help to explain the contract to others. When asked why Mr.
McCall was chosen to chair the committee rather than someone more
knowledgeable, Mr. Karmazin told the Webb team that it was an "image
thing" (the NYSE had just instituted new governance standards).

Mr. McCall's excuse for not giving directors
"additional details" about the $48 million or other aspects of the
contract -- which were clearly stated in the text -- is that "he was
not aware of any." That's because, as he admitted, he didn't read the
full document, even before he signed it. Moreover, at least one
director, Van der Moolen's Mr. Fagenson "asked McCall twice to make
certain that all pension plans and other plans were going to terminate
on this date, but stated he never received any updates from McCall on
these issues."

As Mr. McCall went to brief the full board on Aug. 7,
2003, he was given talking points that referenced the extra $48 million
but didn't read these or tell the board. J.P. Morgan Chase CEO William
Harrison noted that Mr. McCall "did not appear to understand the
proposed payout very well. . ." Avon CEO Andrea Jung noted that "McCall
struggled" and that "others were more able to answer questions." Mr.
Karmazin described Mr. McCall as "flustered," and said he did a
"horrible job" of explaining the numbers. Leon Panetta, former Clinton
White House chief of staff, speaking of a later McCall performance, was
blunt: "Carl knew nothing."

The article sums up the Board this way:

The board, which was often
dysfunctional, was stocked with celebrities from diverse
constituencies, many of whom didn't understand the NYSE or take their
responsibilities seriously. Former New York State Comptroller Carl
McCall, who brought Mr. Grasso's contract to fruition, was viewed by
his colleagues as incompetent and, in the words of Goldman Sachs CEO
Henry Paulson, not "financially sophisticated." Former Secretary of
State Madeleine Albright felt she shouldn't "question" the pay; Bear
Stearns CEO James Cayne admitted he "tuned out" of the pay proceedings;
and Van der Moolen Vice Chairman Robert Fagenson suggested the only
real concern was "how this was going to reflect on the Board."

But the interviews also make clear that more astute
board members, such as Mr. Langone, former Viacom President Mel
Karmazin, and former Merrill Lynch Chairman David Komansky, took it
upon themselves to understand Mr. Grasso's contract, and offered strong
arguments for why they'd paid him as they had. "We knew what we were
doing when we paid him. We did it purposely, and we believed it was the
right compensation," Mr. Komansky said in his interview

In this environment, Grasso is culpable, how?

I honestly thought this was a gag at first.  Those sophisticated Europeans, who are supposedly so much more protective of civil rights and privacy and the like than we neanderthals in the US, are requiring that Spanish executives register details of their sex life with the government:

SPANISH business leaders are being told they have to declare any illicit love affairs - to the stock market.

In an attempt to crack down on insider trading, the directors of
companies quoted on Spain's stock exchange will have to come clean, on
a twice-yearly basis, about anyone with whom they are having an
"affectionate relationship"...

Company directors must also provide information about their wives or
husbands and family, but it is the idea of a "lovers' register" - in
which bosses could have to admit to having affairs or out themselves as
gay - which has sparked reactions ranging from disbelief to fury among
businessmen.

Ricard Fornesa, the president of the huge La Caixa savings bank, described the legislation as "laughable".

A spokesman for another leading Spanish financial house - who would
not be named - was outraged, saying: "If I had a lover, which I don't,
would they expect me to admit it? What next? I get a call from someone
who has found out saying "˜pay me money or I tell your wife'. It's
stupid and it's ludicrous."

I don't think this even requires comment.  Some of course will have nothing to do with it or will remain silent.  Knowing a few Spanish gentlemen, though, I wonder if there will be some who will have the tendency to exaggerate and tack on names.  I would be tempted to submit a list of all the wives of male Congressmen.  I guess I should start working on my submission in case this approach is adopted by the SEC.  Lets see now ... Paris Hilton, the Olsen twins, Laura Bush, Maria Shriver, Martha Stewart, Lassie, the Little Mermaid, ...

Hat tip to Overlawyered.