Elon Musk cheers on Justice Department probe of short sellers
Tesla CEO Elon Musk told CNBC that he is glad to see the Justice Department is investigating short sellers, who have long been a target of the billionaire’s ire. He also took a fresh shot at the Securities and Exchange Commission, another of his frequent targets.
“I am greatly encouraged by the Justice Department investigating short sellers,” Musk told CNBC in an email Tuesday. “This is something the SEC should have done, but, curiously, did not.”
The Justice Department is reportedly investigating two investors who have previously shorted Tesla’s stock. The SEC, meanwhile, has been scrutinizing Tesla, which has prompted a vicious legal fight between the company and the regulator.
Musk has taken his grudge with the SEC to the public, insulting the regulator at times. In 2018, he called the agency the “shortseller enrichment commission.” Nearly two years later, he made a vulgar dig at the SEC.
The SEC recently submitted a letter to a federal judge responding to previous allegations by Musk that the SEC had “broken promises” and engaged in a “pattern of conduct” amounting to harassment after an earlier settlement agreement. The SEC had accused Musk of fraud in 2018.
Reuters reported that the SEC is looking into whether Tesla did not properly notify shareholders and the public of the complaint, which focuses on fire risks linked to the company’s solar panel system.
The SEC declined to comment.
Musk also took aim at investing firms that rely on short selling.
“Too often, sophisticated hedge funds have used short selling and complex derivatives to take advantage of small investors. They will short a company, conduct a negative publicity campaign to drive the stock price down temporarily and cash out, then do it all over again many times. The term for this, as you may be aware, is ‘short & distort,” Musk said.
In 2020, Tesla notoriously skewered short sellers by selling red satin “Short Shorts.” Musk also sent a box of shorts to investor and Tesla short-seller David Einhorn in 2018.
Musk is known for moving markets himself, often with tweets, prompting investors to call for more regulatory involvement. Critics have called him a market manipulator.
The Tesla and SpaceX CEO’s comments came during the same email exchange during which he also spoke out about his ongoing standoff with President Joe Biden’s administration.
The DOJ probe, according to The Wall Street Journal, is focusing on alleged instances of so called “spoofing” and “scalping.” Spoofing involves illegally using fake orders to pump or crash a stock price while scalping is when activist investors close out their positions without disclosing that move.
Muddy Waters Research founder Carson Block, a vocal critic of Musk’s who has shorted Tesla stock, is reportedly among the investors who have been served search warrants by federal investigators in the short-seller probe.
Block said in a statement to the Journal: “I’ve been saying for several years that it is critical for all stakeholders in the ecosystem to develop sophisticated data analysis capabilities to detect problematic trading. It’s dangerous to outsource these analyses to non-practitioners.”
The New York Times reported last year that Block was moving on from shorting the electric vehicle giant. In a letter the Times obtained, Block explained his decision to allies by saying “the market cap, the luster, the elan of Elon, is still there.”
Andrew Left, another one-time Tesla short, had his computers seized by federal agents, according to Bloomberg. Left said in 2020 that he was shorting the company’s stock.
Musk’s war with short sellers goes beyond advocating for his company. He spoke out against shorts during the GameStop stock frenzy last year, when large groups of retail investors on Reddit helped pump the stock up 1,500% in two weeks.
“u can’t sell houses u don’t own u can’t sell cars u don’t own but u *can* sell stock u don’t own!? this is bs – shorting is a scam legal only for vestigial reasons,” Musk said in a tweet in January 2021.