By Jacob Wolinsky. Originally published at ValueWalk.
Whitney Tilson’s email to investors discussing Glenn Tongue on Tesla Inc (NASDAQ:TSLA)’s amended 10K filed today.
Q1 2020 hedge fund letters, conferences and more
Glenn Tongue On Tesla’s Amendment To Its 10K
Interesting sleuthing and analysis by my friend and former partner, Glenn Tongue:
Today, Tesla filed an amendment to its 10K. While this kind of filing is not all that unusual, some of the disclosures are eye-popping.
For starters, D&O coverage (directors and officers insurance) was deemed too expensive. The company decided to have its CEO, Elon Musk, personally provide the coverage. This is unprecedented based on my experience and introduces numerous conflicts, making a mockery of the concept of corporate governance at Tesla. Of course, it doesn’t hurt that the board is the highest paid board in America (by multiples of the second place). Here is the disclosure:
Another interesting discolosure involves pledging of shares. Musk is now pledging 48% of his shares, up from 35% at the end of 2018. The total shares pledged is now 18,488,225, or about 10% of total shares outstanding. Other board members, Antonio Gracias and Kimbal Musk also increased their borrowings.
Interestingly, a portion of Musk’s new borrowings were used to buy shares. This is pretty interesting, because he stands to trigger a roughly billion dollar compensation award in about two months. This trigger is based on stock price. So he borrows on his stock, uses the money to buy stock. This buying in part helps drive the stock price towards the trigger point for a massive securities grant. See the circularity here?
So why issue this amended 10K today, when earnings are out after the market close tomorrow? My guess is the company is running desperately low on cash and will announce an offering quickly after the earnings report. The disclosures in this document would be really important for any new deal.
This is still a treacherous stock to invest in, either long or short. The disclosure/accounding games continue to get more an more outrageous, yet the Cult of Musk seems to be impenetrable…
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