Elon Musk, chairman of Tesla, has once-again tweaked the noses of his tormentors by calling federal securities regulators the “Shortseller Enrichment Commission.” His actions could easily put the settlement at risk, depending on the attitude of the federal judge that must approve the deal.
Since Musk agreed to step down as chairman, Tesla shares have slipped from $310 to $281, netting shorts $941 million, a return of 9.6% in less than a week. Friday’s reaction to the insulting tweet pushed the shares even lower and produced more than half a billion in paper profit for the shorts.
Clearly short positions are building in the wake of strong selling by longs, as Musk demonstrates a refusal to keep away from controversy. The SEC is in the awkward position of coming up with ways to contain him without permanently damaging the small investors who speculate in the stock.
Short sellers believe that Tesla shares without Musk would probably not command its current premium. Already previous reports indicated that he has threatened to resign prior to the settlement. Can anything contain him? Perhaps the SEC might experiment with a tweet gag order, or, failing that, force him to change his name to E-long Must.
Research Note written by Jack Willoughby
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