Elon Musk is relentless.
The Tesla chief executive officer, who has been in a showdown with short-sellers who stand to profit from a decline in the company’s shares, has pulled the world’s largest asset manager into his battle: BlackRock.
In a tweet on October 4, Musk mocked the Securities Exchange Commission — just days after settling fraud charges with the agency — by calling the SEC the “Shortseller Enrichment Commission.” He also accused index fund managers such as BlackRock of profiting from “short lending” at the expense of their investors.
BlackRock manages about $6.3 trillion of assets for investors globally. The firm’s iShares Exponential Technologies ETF, which tracks the investment results of an index composed of companies that create or use exponential technologies, owned shares of Tesla as recently as October 4, according to data on BlackRock’s website.
“Index managers like Blackrock pocket [sic] make excessive profit from short lending while pretending to charge low rates for ‘passive’ index tracking,” Musk wrote in a Twitter reply on October 4. He alleged that mostly “small investors & retirement funds, don’t realize that their stocks are being lent to short sellers, diminishing their true equity return.”
Musk wrote on his Twitter account that “The CIO of a major pension fund is the one who deserves credit for uncovering this scam,” and continued tweeting about BlackRock to his more than 22 million followers on Friday.
“When something sounds too good to be true, it usually is,” he wrote in a Twitter reply. “Way the trick works is companies like Blackrock keep up to 50% of short interest revenue, but suffer almost none of equity decline, as they’re just ‘passive’ managers. Blackrock made $597M in short lending last year!”
In an emailed statement, a spokesperson for the asset manager said that “BlackRock engages in securities lending to provide investors in our funds the ability to collect higher returns than they otherwise would receive and has delivered positive lending returns for all participating funds for over 35 years.”
Tesla did not reply to a request for comment on which chief investment officer helped uncover the “scam” alleged by Musk, or concerns that his tweet about the SEC could jeopardize his recent settlement with the regulator.
Musk believes short-selling should be illegal, a view that has changed since 2012, when he thought that short-sellers were often unreasonably maligned, according to his Twitter account.
Short-sellers bet against companies by borrowing shares and then selling them on belief that their price will drop. They make a profit by buying the stock back at lower price before returning them to the lender.
Over Twitter, Carson Block’s Muddy Waters Research on October 4 challenged Musk to a public debate on the merits of short-selling. In seeking to fend off Tesla short-sellers such as Jim Chanos, founder of Kynikos Associates, Musk has aimed a series of inflammatory remarks at them on Twitter, which the SEC cited in its recent lawsuit against Musk.
[II Deep Dive: SEC Sues Elon Musk Over Misleading Tweets About Tesla]
The SEC announced September 29 that Musk settled the suit filed over his August 7 tweet that Tesla had secured funding to go private at $420 a share. The car maker’s stock jumped on the tweet, hurting the position of short-sellers betting against the company.
“Just want to [sic] that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!” Musk tweeted October 4.
The SEC declined to comment on the tweet or any potential impact on its settlement with Musk.
As part of the agreement resolving its charges of securities fraud, the regulator had said Tesla would put in place “additional controls and procedures to oversee Musk’s communications.” The settlement also required Musk and Tesla to each pay a $20 million penalty, with the total $40 million to be distributed to investors harmed by his August 7 tweet.
