From CNN, (I won’t link because I don’t want to send traffic.)
How Elon Musk sold 10 million Tesla shares and increased his Tesla holdings
Tesla CEO Elon Musk sold a massive stake in his company over the past several weeks. And yet he owns 564,000 more shares than he did at the start of the selling spree.
An analysis of his filings shows Musk is not backing away from his holdings in Tesla, despite his promise to follow a poll he sent to his Twitter followers, who called on him to sell 10% of his stake. So far he’s sold 10.1 million shares — about 7 million shares short of the goal.That’s because at the same time he is selling shares, he’s also exercising options to buy additional stock. And he’s doing so at a bargain exercise price of $6.24 a share, well below 1% of Tesla (TSLA)’s current share price. Since Musk’s Twitter poll on November 6, he has exercised options to buy 10.7 million shares of Tesla.
And further more:
Once he’s done with these soon-to-expire options, Musk will have 22.9 million fewer options than he had at the start of this process. But he’ll still have 50.7 million other options that will allow him to buy that many additional shares, albeit at a higher exercise price than options he is now purchasing. He’s not likely to exercise them soon, as virtually none of those options will expire until January of 2028.More options on their way
The number of options Musk holds is likely to grow significantly in the coming year.Musk’s pay package was designed to give him 12 different blocks of options once the company hits certain financial performance and market value targets. With the company now worth $1 trillion, the market value targets are all already accomplished, so it’s a matter of revenue and profit targets being hit.Tesla has already accounted for three additional blocks of 8.4 million options each going to Musk soon, for a total of 25.3 new options, more than making up for the ones he is in the process of exercising. Company filings state that it is “probable” that the needed financial targets will be achieved soon.Analysts agree. Musk could qualify for one block of 8.4 million options with the fourth-quarter results, and two more with first quarter 2022 results, according to Wall Street’s consensus forecasts. And if analysts’ estimates are correct, he could get an additional 8.4 million options in the second or third quarter of 2022, and yet another blog early in 2023.
Essentially Tesla is “printing” more ownership for Musk with each of these options blocks, which is impossible. There is only so much ownership of Tesla available, 100%. By creating these blocks of shares for him to exercise Tesla is inflating the stock certificates, devaluing the existing shares and transferring the delta to Musk.
This is all entirely legal, but it shouldn’t be. Tesla and all other companies that issue thee options should be forced to pay the management, founders, etc., instead of inflating the outstanding share count as a part of compensation.
This whole convention was created for a number of reasons, some of which include:
- To allow poorly capitalized new companies to increase compensation for their talented employees without burning company cash.
- To create an incentive for the talented employees to stay through the rocky patches. Employee retention in other words.
- To align the interests of the talented employees with the interests of the owners.
- To have the talented employees bear some of the risks the owners are taking.
This is not an exhaustive list of reasons to issue these options, but is enough to show some of the arguments for them.
None of the reasons outweigh the evil of essentially defrauding the owners.
- Almost none of the shareholders know about these options, or if they do know, they do understand that they are getting diluted. The letter of the law is meaningless to me. The intent should be followed, fine print is not ok. This stuff is in the fine print. VERY FINE PRINT.
- This encourages the management to focus on share price, not profitability. The two are not necessarily aligned. This encourages speculation. Financial speculation is bad for the people. More on this later. (Save all your comments about financial speculation and it’s effects on volatility, price discovery, etc. I’ll get to this later.)
Tesla is allowing, encouraging Musk to pick the pockets of his shareholders.
Sell Tesla.