elon musk

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Judge rejects Elon Musk’s attempt to avoid testifying in Twitter stock probe

elon musk, elon musk sec, Policy / /

A loss for Elon —

Musk has to testify for SEC probe into whether he violated US securities laws.

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Illustration of a stamp that prints the word

Getty Images | Bet_Noire

Elon Musk can’t avoid testifying in an investigation into whether he violated federal securities laws, a magistrate judge said during a court hearing yesterday.

The Securities and Exchange Commission sued Musk in October to force him to testify for a third time in a probe related to purchases of Twitter stock he made before he bought the company. Musk responded in November by asking the court to block the SEC’s subpoena, claiming the agency is “harassing” him, exceeding its authority to investigate, and making “overly burdensome” demands for “irrelevant evidence.”

Musk’s arguments were rejected during a hearing yesterday in US District Court for the Northern District of California. No formal ruling has been issued yet, but a magistrate judge made it clear she will rule in the SEC’s favor if Musk doesn’t appear for testimony.

“During a hearing in San Francisco, US Magistrate Judge Laurel Beeler quickly rejected arguments by Musk’s attorney that SEC officials do not have the authority to issue subpoenas, saying the agency has broad investigative powers and that no judge would ‘second guess’ an SEC probe,” Reuters reported.

According to Reuters, “Beeler told the sides to figure out when Musk would sit for one more four-hour deposition, or she would issue an order” compelling Musk to testify. “If you don’t work it out, then it’s in San Francisco in February,” Beeler said.

SEC probing Twitter stock purchases

The SEC lawsuit said the subpoena that Musk failed to comply with is for an investigation into whether “Musk violated various provisions of the federal securities laws in connection with (1) his 2022 purchases of Twitter stock, and (2) his 2022 statements and SEC filings relating to Twitter.”

The SEC began its investigation in April 2022 after Musk acquired a 9 percent stake in Twitter and failed to disclose it within 10 days as required under US law. Musk testified twice in July 2022, but the SEC said it has obtained thousands of new documents since then and “has not yet had an opportunity to question Musk about those documents and other substantial information it has obtained in its investigation.”

The SEC told the court that its investigation into whether Musk violated securities laws “pertains to considerably more than the timing and substance of a particular SEC filing; it also relates to all of Musk’s purchases of Twitter stock in 2022 and his 2022 statements and SEC filings.”

Musk’s response complained that “the SEC has opened one investigation after another into Mr. Musk and companies related to him, often targeting its inquiries into his constitutionally protected rights.” Musk alleged that the SEC probe has focused on his political beliefs and “passion for the First Amendment,” and “reeks of McCarthyism that has no place in a free country.”

Judge “emphatically” rejected Musk argument

Beeler “emphatically” dismissed arguments put forward by Musk’s attorney yesterday, according to Reuters. “You’ve got one more four-hour deposition, one more day of depositions to survive and it’s over. It seems unlikely there’s going to be any more hassle,” Beeler was quoted as saying.

Musk’s filing also claimed that SEC enforcement staff members cannot issue subpoenas due to requirements in the Constitution’s Appointments Clause. “The issuance of an administrative subpoena demanding Mr. Musk’s testimony is an exercise of significant governmental authority of the kind that can be performed only by ‘Officers of the United States,'” Musk’s filing said. “And under Article II, such officers can be appointed only by the President, a court, or the head of a department.”

According to Reuters, Beeler “said she is inclined to take the SEC’s view on the [Appointments Clause] issue but would take a closer look before issuing her order.”

Separately, Musk last week asked the Supreme Court to terminate a settlement that requires him to get Tesla’s pre-approval for tweets or other social media posts that may contain information material to the company or its shareholders. Musk agreed to the settlement after the SEC said his August 2018 tweets claiming he had secured funding to take Tesla private were false and caused significant market disruption.

Musk’s attempts to terminate the settlement with the SEC were previously rejected by a US district court and a federal appeals court.

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Elon Musk told bankers they wouldn’t lose any money on Twitter purchase

elon musk, Policy, syndication, Twitter, X / /

Value destruction —

Lenders unlikely to get even 60 cents on the dollar for the bonds and loans.

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Elon Musk and a twitter logo

Elon Musk privately told some of the bankers who lent him $13 billion to fund his leveraged buyout of Twitter that they would not lose any money on the deal, according to five people familiar with the matter.

The verbal guarantees were made by Musk to banks as a way to reassure the lenders as the value of the social media site, now rebranded as X, fell sharply after he completed the acquisition last year.

Despite the assurances, the seven banks that lent money to the billionaire for his buyout—Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho and Société Générale—are facing serious losses on the debt if and when they eventually sell it.

The sources did not specify when Musk’s assurances were made, although one noted Musk had made them on several occasions. But the billionaire’s behavior, both in attempting to back out of the takeover in 2022 and more recently in alienating advertisers, has more broadly stymied the banks’ efforts to offload the debt since he engineered the takeover.

Large hedge funds and credit investors on Wall Street held conversations with the banks late last year, offering to buy the senior-most portion of the debt at roughly 65 cents on the dollar. But in recent interviews with the Financial Times, several said there was no price at which they would buy the bonds and loans, given their inability to gauge whether Linda Yaccarino, X’s chief executive, could turn the business around.

One multibillion-dollar firm that specializes in distressed debt called X’s debt “uninvestable.”

Selling the $12.5 billion of bonds and loans below 60 cents on the dollar—a price many investors believe the banks would be lucky to achieve in the current market—would imply losses before accounting for X’s interest payments of $4 billion or more, writedowns that have not yet been publicly reported by the syndicate of lenders, according to FT calculations. The debt is split between $6.5 billion of term loans, as well as $6 billion of senior and junior bonds and a $500 million revolver.

Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho and Société Générale declined to comment. A spokesperson for X declined to comment. Musk did not return a request for comment.

The banks have held the debt on their balance sheets instead of selling at a steep loss in the hope that X’s performance will improve following a series of cost-cutting measures. Several people involved in the transaction noted that there was no plan to sell the debt imminently, with one saying there was no guarantee the banks would be able to offload the debt even in 2024.

The people involved in the deal cautioned that Musk’s guarantee was not based on any formal contract. One said they understood it as a boastful statement that the entrepreneur had never let his lenders down.

“I have never lost money for those who invest in me and I am not starting now,” he told Axios earlier this month, when asked about a separate fundraising push by his company X.ai Corp.

Some on Wall Street view Musk’s personal guarantees with skepticism, given that he tried to back out of his agreement to buy Twitter despite a watertight contract, before relenting.

Nevertheless, the guarantee from a man whose net worth Forbes pegs at about $243 billion has helped some of the bankers make the pitch to their internal committees that they can ascribe a higher price to the debt while they hold it on their balance sheets.

Morgan Stanley, the largest lender on the deal, in January disclosed $356 million in mark-to-market losses on corporate loans it planned to sell and loan hedges. Banks rarely report specific losses tied to an individual bond or loan, and often report write-downs of multiple deals together.

Wall Street was saddled with the Twitter buyout loan at the same time they were holding a smattering of other hung bridge loans—deals they were forced to fund themselves after failing to raise cash in public bond and loan markets. The FT has previously reported on large losses tied to other hung loans at the time, including the buyouts of technology company Citrix and television rating provider Nielsen.

How the debt has been marked on bank balance sheets has been an open question for traders and investors across Wall Street, given how much X’s business has deteriorated since Musk bought the company.

Musk, already out of favor with marketers for loosening content moderation, last month lost more advertisers after endorsing an antisemitic post. In November he followed by telling brands that were boycotting the business over his actions to “go fuck” themselves, criticizing Disney’s Bob Iger in particular.

According to a report last week from market intelligence firm Sensor Tower, in November 2023 total US ad spend among the top 100 advertisers on X was down nearly 45 percent compared with October 2022, prior to Musk’s takeover.

© 2023 The Financial Times Ltd. All rights reserved. Not to be redistributed, copied, or modified in any way.

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Elon Musk’s new AI bot, Grok, causes stir by citing OpenAI usage policy

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You are what you eat —

Some experts think xAI used OpenAI model outputs to fine-tune Grok.

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Illustration of a broken robot exchanging internal gears.

Grok, the AI language model created by Elon Musk’s xAI, went into wide release last week, and people have begun spotting glitches. On Friday, security tester Jax Winterbourne tweeted a screenshot of Grok denying a query with the statement, “I’m afraid I cannot fulfill that request, as it goes against OpenAI’s use case policy.” That made ears perk up online since Grok isn’t made by OpenAI—the company responsible for ChatGPT, which Grok is positioned to compete with.

Interestingly, xAI representatives did not deny that this behavior occurs with its AI model. In reply, xAI employee Igor Babuschkin wrote, “The issue here is that the web is full of ChatGPT outputs, so we accidentally picked up some of them when we trained Grok on a large amount of web data. This was a huge surprise to us when we first noticed it. For what it’s worth, the issue is very rare and now that we’re aware of it we’ll make sure that future versions of Grok don’t have this problem. Don’t worry, no OpenAI code was used to make Grok.”

In reply to Babuschkin, Winterbourne wrote, “Thanks for the response. I will say it’s not very rare, and occurs quite frequently when involving code creation. Nonetheless, I’ll let people who specialize in LLM and AI weigh in on this further. I’m merely an observer.”

A screenshot of Jax Winterbourne's X post about Grok talking like it's an OpenAI product.

Enlarge / A screenshot of Jax Winterbourne’s X post about Grok talking like it’s an OpenAI product.

Jason Winterbourne

However, Babuschkin’s explanation seems unlikely to some experts because large language models typically do not spit out their training data verbatim, which might be expected if Grok picked up some stray mentions of OpenAI policies here or there on the web. Instead, the concept of denying an output based on OpenAI policies would probably need to be trained into it specifically. And there’s a very good reason why this might have happened: Grok was fine-tuned on output data from OpenAI language models.

“I’m a bit suspicious of the claim that Grok picked this up just because the Internet is full of ChatGPT content,” said AI researcher Simon Willison in an interview with Ars Technica. “I’ve seen plenty of open weights models on Hugging Face that exhibit the same behavior—behave as if they were ChatGPT—but inevitably, those have been fine-tuned on datasets that were generated using the OpenAI APIs, or scraped from ChatGPT itself. I think it’s more likely that Grok was instruction-tuned on datasets that included ChatGPT output than it was a complete accident based on web data.”

As large language models (LLMs) from OpenAI have become more capable, it has been increasingly common for some AI projects (especially open source ones) to fine-tune an AI model output using synthetic data—training data generated by other language models. Fine-tuning adjusts the behavior of an AI model toward a specific purpose, such as getting better at coding, after an initial training run. For example, in March, a group of researchers from Stanford University made waves with Alpaca, a version of Meta’s LLaMA 7B model that was fine-tuned for instruction-following using outputs from OpenAI’s GPT-3 model called text-davinci-003.

On the web you can easily find several open source datasets collected by researchers from ChatGPT outputs, and it’s possible that xAI used one of these to fine-tune Grok for some specific goal, such as improving instruction-following ability. The practice is so common that there’s even a WikiHow article titled, “How to Use ChatGPT to Create a Dataset.”

It’s one of the ways AI tools can be used to build more complex AI tools in the future, much like how people began to use microcomputers to design more complex microprocessors than pen-and-paper drafting would allow. However, in the future, xAI might be able to avoid this kind of scenario by more carefully filtering its training data.

Even though borrowing outputs from others might be common in the machine-learning community (despite it usually being against terms of service), the episode particularly fanned the flames of the rivalry between OpenAI and X that extends back to Elon Musk’s criticism of OpenAI in the past. As news spread of Grok possibly borrowing from OpenAI, the official ChatGPT account wrote, “we have a lot in common” and quoted Winterbourne’s X post. As a comeback, Musk wrote, “Well, son, since you scraped all the data from this platform for your training, you ought to know.”

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After losing everywhere else, Elon Musk asks SCOTUS to get SEC off his back

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Musk v. SEC —

Musk’s last-ditch effort to terminate settlement over “funding secured” tweets.

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Elon Musk on stage at an event, resting his chin on his hand

Enlarge / Elon Musk at an AI event with Britain Prime Minister Rishi Sunak in London on Thursday, Nov. 2, 2023.

Getty Images | WPA Pool

Elon Musk yesterday appealed to the Supreme Court in a last-ditch effort to terminate his settlement with the Securities and Exchange Commission. Musk has claimed he was coerced into the deal with the SEC and that it violates his free speech rights, but the settlement has been upheld by every court that’s reviewed it so far.

In his petition asking the Supreme Court to hear the case, Musk said the SEC settlement forced him to “waive his First Amendment rights to speak on matters ranging far beyond the charged violations.”

The SEC case began after Musk’s August 2018 tweets stating, “Am considering taking Tesla private at $420. Funding secured” and “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.” The SEC sued Musk and Tesla, saying the tweets were false and “led to significant market disruption.”

The settlement required Musk and Tesla to each pay $20 million in penalties, forced Musk to step down from his board chairman post, and required Musk to get Tesla’s pre-approval for tweets or other social media posts that may contain information material to the company or its shareholders.

Musk told the Supreme Court that the need to get pre-approval for tweets “is a quintessential prior restraint that the law forbids.”

In the settlement, “the SEC demanded that Mr. Musk refrain indefinitely from making any public statements on a wide range of topics unless he first received approval from a securities lawyer,” Musk’s petition said. “Only months later, the SEC sought to hold Mr. Musk in contempt of court on the basis that Mr. Musk allegedly had not obtained such approval for a post on Twitter (now X). In effect, the SEC sought contempt sanctions—up to and including imprisonment—for Mr. Musk’s exercise of his First Amendment rights.”

Musk’s court losses

In April 2022, Musk’s attempt to get out of the settlement was rejected by a US District Court judge. Musk appealed to the US Court of Appeals for the 2nd Circuit, but a three-judge panel unanimously ruled against him in May 2023. Musk asked the appeals court for an en banc rehearing in front of all the court’s judges, but that request was denied in July, leaving the Supreme Court as his only remaining option.

The 2nd Circuit panel ruling dismissed Musk’s argument that the settlement is a “prior restraint” on his speech, writing that “Parties entering into consent decrees may voluntarily waive their First Amendment and other rights.” The judges also saw “no evidence to support Musk’s contention that the SEC has used the consent decree to conduct bad-faith, harassing investigations of his protected speech.”

There is no guarantee that the Supreme Court will take up Musk’s case. Musk’s petition says the case presents the constitutional question of whether “a party’s acceptance of a benefit prevents that party from contending that the government violated the unconstitutional conditions doctrine in requiring a waiver of constitutional rights in exchange for that benefit.”

Musk argues that his settlement violates the unconstitutional conditions doctrine, which “limits the government’s ability to condition benefits on the relinquishment of constitutional rights.” He says his case also presents the question of “whether the government can insulate its demands that settling defendants waive constitutional rights from judicial scrutiny.”

“This petition presents an apt opportunity for the Court to clarify that government settlements are not immune from constitutional scrutiny, to the immediate benefit of the hundreds of defendants who settle cases with the SEC each year,” Musk’s petition said.

Musk complains about SEC investigations

Musk claims he is burdened with an “ever-present chilling effect that results from the pre-approval provision” and complained that the SEC has continued to investigate him. “In the past three years, the SEC has at all times kept at least one investigation open regarding Mr. Musk or Tesla. The SEC’s actions—in seeking contempt and then maintaining a steady stream of investigations—chills Mr. Musk’s speech,” the petition said.

As previously noted, the 2nd Circuit appeals court judges did not think the SEC investigations of Musk had gone too far. “To the contrary, the record indicates that the SEC has opened just three inquiries into Musk’s tweets since 2018,” the May 2023 appeals court decision said. The first of those three investigations led to the settlement that Musk is trying to get out of. The second and third investigations sought information about tweets in 2019 and 2021.

Although Musk has repeatedly lost his attempts to undo the SEC settlement, he prevailed against a class-action lawsuit that sought financial damages for Tesla shareholders. The judge in that case ruled that Musk’s tweets about having secured funding to take Tesla private were false and reckless, but a jury sided with Musk on the questions of whether he knew the tweets were false and whether they caused Tesla investors to lose money.

Despite the class-action suit’s failure, Tesla investors are getting some money. The $40 million in fines paid to the SEC by Musk and Tesla, plus interest, is in the process of being distributed to investors.

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Elon Musk’s Brain-chip Startup Approved by FDA for Testing on Humans

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Neuralink, Elon Musk’s brain-machine interface (BMI) company, has announced that it has received approval from the US Food and Drug Administration (FDA) to conduct its first tests on humans. The company is developing minimally invasive brain chips which it hopes to use to restore vision and mobility for people with disabilities.

Neuralink says it doesn’t have immediate plans to recruit participants, however the FDA approval marks a significant step forward after a previous bid was rejected on safety grounds.

In March, Reuters reported the FDA’s major safety concerns involved the device’s lithium battery, the potential for the implant’s tiny wires to migrate to other areas of the brain, and questions over whether and how the device can be removed without damaging brain tissue.

Musk’s BMI startup first revealed a wireless version of its ‘N1 Link’ implant working in pigs in 2020, which streamed neural data in order to track limb movement. It has since showcased its neural implants working in primates, notably allowing a macaque test subject to play Pong using only its thoughts.

N1 Link (left), Removable charger/transmitter (right) | Image courtesy Neuralink

Neuralink’s N1 Implant is hermetically sealed in a biocompatible enclosure which the company says is capable of withstanding harsh physiological conditions. The N1 Implant is implanted by a custom a surgical robot; Neuralink says this ensures accurate and efficient placement of its 64 flexible threads which are distrusted to 1,024 electrodes.

Powered by a small lithium battery that can be wirelessly charged using a compact, inductive charger, the implant is said to incorporate custom low-power chips and electronics that process neural signals and transmit them wirelessly to the Neuralink Application.

Neuralink is currently focused on giving people with quadriplegia the ability to control computers and mobile devices with their thoughts. In the future, the company hopes to restore capabilities such as vision, motor function, and speech, and eventually expand “how we experience the world,” the company says on its website.

That last bit is undoubtedly the company’s most ambitious goal, which the company has said will not only include reading electrical brain signals from paralyzed and neurotypical users alike, but also eventually the ability to “write” signals back to the brain.

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Neuralink “Show & Tell” Coming on November 30th, Hints at Thought-controlled Typing

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Elon Musk’s brain-machine interface (BMI) company Neuralink has been fairly quiet since it last showed off a live trial of the company’s implant in a macaque early last year. Although originally scheduled for October 31st, Musk says a “show & tell” update is coming on November 30th.

The event is said to take place on November 30th at 6: 00 PM PT (local time here). The company’s Twitter profile left a possible hint at this year’s update in an announcement, and it appears to be focused on text input.

The company says in its application FAQ it hasn’t yet begun clinical trials, although BMI text input may be difficult to prove in non-human subjects, so we’ll just have to wait and see.

Like many of Musk’s startups, Neuralink has some fairly lofty goals. The company says in the near-term it wants to help those with paralysis and neurological conditions and disorders and “reduce AI risk to humanity in the long term.”

Here’s a quick recap of events to bring you up to speed for Wednesday’s show and tell:

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