Op-Ed: Tesla, Musk, and the Greenspan fraud lawsuit – If the fan gets hit, you’re gonna need a new fan

Elon Musk. — © POOL/AFP Kirsty Wigglesworth

Perhaps one of the most controversial lawsuits in US business history is a claim of massive fraud and other illegalities against Tesla and Musk by journalist Aaron Greenspan. This is a sort of shopping list of claims which in the name of keeping it simple doesn’t accuse Musk or Tesla of jaywalking.

There’s a surprisingly long list of claims by Greenspan, as detailed here by an analyst under the not-very-reassuring title of “Enron-level Fraud?” There are far too many allegations to list here. Greenspan is adamant that he has a solid case.

Some of the allegations go back to circa 2017, when Tesla was a low-value stock with multiple issues with technology, Musk, and the market. Since then, Tesla has become a market colossus, with a bigger market capitalization than all other manufacturers combined.

The stock price moves have a story of their own to tell. The now-omnipresent Musk has been a major PR asset and a liability over that time. Tesla has had successes and failures. The stock has often been volatile. Musk’s market moves are part of the lawsuit, alleging improper trading.

The story, however, doesn’t necessarily gel with any of the stock price moves. Particularly not in the early days, when Tesla was more of a novelty stock than a big market mover. It was worth about $20 for years.

These days Tesla has major league institutional investors like Vanguard, Black Rock, and State Social as significant shareholders. This is where and why this fraud story gets potentially market-critical.

Never mind “trial by media”. Never mind whether you believe the allegations or not. (After all, who knows?) Nobody cares whether you like Musk or not, notably Musk. There’s a lot more riding on this case than uninformed speculation.  

The NASDAQ is a core index for investors with unthinkable amounts of money in play. If Tesla takes a major hit, guilty or not, based on investor sentiment, the index will take a bigger hit. Tesla can easily drag the whole index down with it.

The problem here is that many investors indirectly invest in Tesla whether they know it or not, through ETFs, index-based funds, etc. If Tesla loses, they lose. So, the fallout from a major stock correction could be horrendous. Anything from 401ks to Mom-and-Pop investors could take an unwanted bath.

So could private equity and hedge funds. Those people aren’t usually too happy about losing money. They’ll move fast and far if things get difficult, further upsetting the NASDAQ apple cart.

Also interesting is the fact that the big investors don’t seem too fazed by the allegations. This is not the Amateur Hour Investment Circus Glee Club we’re talking about. They know their stuff. They can’t possibly be unaware of the seriousness of the allegations.

This isn’t the Twitter takeover, either. It’s far more complex and far-reaching. These same funds were major investors when Musk took over. They didn’t even blink when the former management decided to put $4.5 billion in revenue into stock buybacks. They just took the money.

A hit to the NASDAQ could do a lot of damage to their other investments as collateral damage. The state of the index is critical in the short term, and maybe long-term, if it’s a prolonged dip in the index. Even if they bought in to Tesla at rock bottom, there’s that much more in play.

Apathy isn’t a great solution for anything under these circumstances. If the allegations are proven, the NASDAQ itself could be under severe critical investigation. Some of these allegations could also be criminal charges, not perhaps the best PR for the NASDAQ or anyone else.

If not proven, maybe it’s OK, but maybe the market will do what it normally does; panic first and think later. Either way is likely to be expensive. That’s not likely to be good for anyone and could result in negative movements in the S&P as well simply because investment money will have to move.

This potential hyper-mess could be a demolition charge to a key capital market. That’s what you need to watch.