Another Tesla Charts Podcast, this time about Jay Clayton's conflicts

Luck was my lady when I published two newsletters about SEC Chairman Jay Clayton's conflicts right before Pres. Trump nominated him to an even bigger job

Episode #32 at TC’s Chartcast with me,  @retheauditors , is now live! Find it on all major podcast platforms and it’s free.

Many of The Dig newsletter editions I mention in the interview are only available to my paid subscribers. As a Tesla Charts Podcast listener you can have a deal on a subscription to paid content if you do it now.

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Reports on June 21 indicated that President Trump is considering SEC Chairman Jay Clayton for the job of U.S. Attorney for the Southern District of New York. 

Just a few days before, I had criticized Clayton for his many and manifest conflicts of interest in his current role. I had a wide-ranging Q&A on the Tesla Charts podcast about Clayton’s conflicts on the 24th. It’s a lengthy conversation—but I think readers will find it useful.

So much drama… Since then Attorney General Bill Barr has done even more rearranging in key Justice Department roles. The U.S. Attorney for the Eastern District of New York is also moving on to a bigger and they say better job inside the Justice Department.

Matt Goldstein at the New York Times straightened me out that the 1MDB case is in the Eastern District. Now that that job is also up for grabs, maybe Clayton can do both.

When questioned by Rep. Katie Porter, Clayton would not promise he would recuse from conflicts of interest as US Attorney. Reports are that Barr got the idea to dump the current SDNY U.S. Attorney because Clayton asked for the job over a round of golf.

Clayton’s ambitions don’t seem to be limited by the customary norms of actually having trial experience as a criminal prosecutor. If anyone wants to offer me the job of head of the business school at University of Chicago I’d be willing to move back to the Windy City for that!

My one hour of conversation with the podcast interviewers “Tesla Charts” and “Georgia Orwell” also included my two cents on the Wirecard and EY Germany scandal. Michael Rapoport wrote here about one tasty angle related to EY Germany’s exposure to ongoing fallout from the fraud. I have more coming on Wirecard and EY so stay tuned!

On the podcast I mentioned two specific stories about Jay Clayton’s conflicts, published, serendipitously, before the announcement that started the drama late on a Friday night that U.S. Attorney Berman was out to make room for Clayton.

Why did the SEC, and Chairman Jay Clayton, go easy on KPMG?

Many possible reasons have been floated but serendipity surfaced a new potential rationale | Published June 18


Are Jay Clayton's conflicts kiboshing SEC Enforcement's BABIP?

When Clayton took the SEC top spot in 2017 SEC Enforcement had to leave some big deal open investigations on base | Published June 17

The podcast hosts also asked about a very pointed tweet about Clayton from Walter Schaub, the former head of the Office of Government Ethics, who was on the job when Clayton submitted his ethics disclosures and list of promised recusals.

The podcast hosts asked about some other Clayton conflicts not fully investigated by Congress or the media and I pointed them to this article. It’s a story line that was never fully explored at the time of Claytons confirmation to SEC Chairman but is coming up again now that he is aspiring to bigger and more powerful jobs.

Sometimes what’s not said, rather than what is disclosed, makes all the difference.

In researching the data for the Clayton posts I did on June 17 and 18, I think I also answered some other questions that have been floating out there about an SEC investigation that drew in Tesla and Goldman Sachs.

I wrote in an earlier newsletter in April 2020:

On July 13, 2016, Probes Reporter had written that it had confirmed an undisclosed investigation at Tesla. The company promptly issued a widely reported denial, but Probes Reporter was not buying it.  

Through clever language and careful omission, we think Tesla is misleading investors about SEC investigative risk.

We now know, with certainty, that as of 06-Jul-2016, Tesla was involved in an undisclosed SEC investigation that was ongoing at the time. It was and remains undisclosed.  Further, and this is important, we received an earlier response from the SEC dated 27-Jun-2016, that makes it clear there was already an SEC investigation of Tesla before 30-Jun-2016, the day the company first disclosed news of a recent crash of one of its cars. That means the SEC was investigating something else, something unrelated to the disclosures of the crash.  

As I described in an earlier newsletter, Professors Daniel Taylor of The Wharton School at the University of Pennsylvania (paper contact), Terrence Blackburne of the College of Business at Oregon State University, John D. Kepler, of the Graduate School of Business at Stanford University and Phillip J. Quinn of the Foster School of Business at the University of Washington obtained data, via the Freedom of Information Act, on the targets of all formal SEC investigations closed between 2000 and 2017. (That’s regardless of outcome of the investigation and regardless of whether the company disclosed the investigation.)

The SEC’s response to the academics confirms that there was an open investigation perhaps about the crash, perhaps about more, in July of 2016.

The investigation was closed a year later with no enforcement action taken, according to the information the academics received. Probes Reporter had already gotten the proof in a FOIA response.

In their research paper, Taylor and his colleagues reproduce a figure excerpted from the report of the General Accounting Office (2007): Additional Actions Needed to Ensure Planned Improvements Address Limitations in Enforcement Division Operations. Brackets were added in the paper to highlight the non-public activities.

I spoke to Wharton’s Dan Taylor, who told me the SEC’s response includes three Tesla-related investigations that closed between 2000 and 2017.

I also wrote in my June 17 newsletter on Jay Clayton’s conflicts:

In the case of Goldman Sachs, Morgan Stanley, and JP Morgan Chase, the SEC closed investigations shortly after Clayton started work but took no enforcement actions.

One of the SEC’s five Goldman Sachs investigations closed in 2017 — target labeled “Goldman Sachs Inflation Trading” and issue labeled “Broker-Dealer” — opened on May 13, 2016 and closed on June 21, 2017. That’s highly aligned with an investigation at Tesla issue labeled “Financial Fraud/Issuer Disclosure” that opened and closed around the same dates.

It may be that this has all now come together as a result of access to the closed investigations data for 2017.

From Dealbreaker on January 14, 2019:

Remember When Goldman Upgraded Tesla The Same Day It Underwrote A $2 Billion Stock Offering? So Does The SEC

Talk about a funny coincidence.

Let's just go ahead and assume that it was a harmless coincidence when, on May 18, 2016, Goldman Sachs' equity analysts decided to upgrade Tesla in advance of its new product launch – “putting in our reservation for the Model 3,” they enthused – just hours before a different desk at 200 West announced it would join Morgan Stanley in underwriting a $2 billion Tesla share sale necessary for producing that very same car. The synchronicity was so blatant that Goldman had to defend the independence of its research and bat away calls for regulators to get involved.

Did Jay Clayton’s SEC go easy on Elon Musk for his “420” tweet clusterduck because “The Chairman” is more worried about the exposure to one of the company’s major banks? After all, it’s not only Goldman Sachs but Morgan Stanley, another former Clayton client, that is exposed if Tesla is crushed by legal and regulatory fines and sanctions.

© Francine McKenna, The Digging Company LLC, 2020

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