Investor's Corner

Elon Musk shows open support for Justice Department’s probe into short sellers

(Credit: Tesla)

Tesla CEO Elon Musk is happy to see the US Justice Department initiate an investigation into short-sellers. In an email to CNBC, Musk stated that he is encouraged by an ongoing probe from the DOJ, as it is doing something that the Securities and Exchange Commission has curiously not done so far. 

“I am greatly encouraged by the Justice Department investigating short sellers. This is something the SEC should have done, but, curiously, did not,” Musk wrote

Earlier this month, reports emerged stating that federal prosecutors were looking into whether short-sellers conspired to drive down stock prices by sharing damaging research reports ahead of time and engaging in illegal trading tactics. The Justice Department had reportedly seized hardware, trading records, and private communications from key individuals as part of its investigation. 

Two notable Tesla critics were among those reportedly investigated. Muddy Waters Research founder Carson Block, a vocal Tesla critic, reportedly received a search warrant. Andrew Left of Citron Research, who has also shorted Tesla in the past, reportedly had his computers seized by federal agents, as per a report from Bloomberg

Musk, for his part, noted in his email that practices such as “short and distort,” which include the use of negative publicity to drive down a company’s stock price, are a way for sophisticated hedge funds to take advantage of small investors. The DOJ’s probe could then result in small investors getting harmed less frequently. 

“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,'” the CEO noted. 

Musk’s dislike for short-sellers actually goes beyond Tesla. Last year, Musk spoke out against short sellers during the radical rise of GameStop stock. He also called shorting a “scam legal only for vestigial reasons” on Twitter in January 2021. 

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Elon Musk shows open support for Justice Department’s probe into short sellers
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