To paraphrase the old saying credited to Mark Twain “History doesn’t repeat, but it sure does rhyme.” So it is in that light I offer up something I’ve made mention of numerous times when it comes to Tesla™. e.g., The HealthSouth scandal of 1996 through 2002.
Let me be clear: I am not insinuating that Tesla or anyone involved prior, present or past is in any way, shape, manner or form doing anything illegal or anything else. What I am bringing to attention is things that anyone with a modicum of business acumen would either find suspiciously odd or, maybe even setting off alarm bells for further inquiry. Nothing more.
After-all, Tesla is a public company, meaning the public, like you or I, have the right to openly question should we want to consider or actually invest now or in the future. Or, if we are already.
I do not own, have any positions, nor do I wish to acquire any shares in the future. And this is not investing advice at any level, just an observation. So with that said…
Tesla reported what can only be described as fantastic numbers for its vehicles. e.g., record production and delivery. And yet, what appears to be only a week or so prior to this reporting milestone, the man hired in 2016, Peter Hochholdinger, to achieve this “record” abruptly leaves.
However, just as the say on TV “But wait…there’s more!”
Again this time, just days prior to the release, it was reported that two more decided to “Exit…stage left.” That would be their Head of European Operations and V.P. of Interior and Exterior Engineering .
Is this not a bit strange that prior to reporting of what should be something to stand and cheer about, some of the people directly involved in the ability for this record to be hit scoot out before the report is even made public?
I’m sorry but this is just a bit odd from so many viewpoints.
So by now your asking “OK, but so what? What does this have to do with that healthcare thingy you referenced earlier?” Great question. And it is this…
One of the things that usually happens when things are going awry in companies that, for lack of a better term, “begin pushing the accounting to its legal limits.” That pushing sometimes turns into shoving not just numbers into places where they don’t belong, but the people responsible for them. As in, over the legal, moral or ethical line. All for the sake of satisfying Wall Street, their own ego’s and wallets, or all of them combined.
Usually not till after the so-called “fall” (or whistle-blower) is where it’s learned it all began as some “one time thing,” which eventually turned into some serial monster through the discovery process of forensic accounting. Albeit, there are times it is pure, unadulterated greed via creating a scam from the get-go. But the vast majority, I believe, are the former.
The reason why HealthSouth keeps coming to my mind was that I was fascinated with this and a few other stories that were being aired on CNBC™ in their “American Greed” series years ago.
The reason why? I personally had dealings with another fraudster featured in this series, which at the time was unbeknownst to anyone. And without my attorney, who I consider one of the best legal councilor’s available (and proved it!) would have probably been on the show myself!
I only found out and was able to put two-and-two together on why it was so difficult to be rid of this debacle years after, when it all blew up entangling countless others. (pro-tip: this is why you need to have and pay for top council.)
Consequently since then I’ve paid particular interest as to try and spot clues that seemed to elude many of the best prior. Call it the: ever-evolving, all-important financial survival instinct aka “Bullsh#t Detector”
So with that in mind, every time I read another Tesla C-suite, or other high ranking individual leaving the company as all these “records” are being hit. My “BS” meter for some reason goes off the scale like some cartoon caricature. Doesn’t mean I’m right, it just does.
To show you what I’m describing let me show you a passage from an article from 2017 via CFO .com where the CFO’s and others that went to jail describe some of the behind the scenes that led up to the entire ruse collapsing. To wit:
All of this, of course, was a recipe for fraudulent behavior.
“Richard would meet with analysts every year and ask them what we needed to do to keep our strong ‘buy’ rating for the stock,” Beam said. “And they would tell him, and he’d say ‘we can do that, no problem.’ It didn’t matter what our projections showed.”
That worked for several years, Beam recalled, as HealthSouth made a lot of money. Eventually, though, Scrushy promised more than the company could deliver, according to Beam.
“I started doing things like changing any accounting estimate I could, involving bad debts or whatever,” he said. “But over time Wall Street noticed that our earnings didn’t match our cash flow.”
In the summer of 1996, HealthSouth badly missed its earnings target. Beam and Bill Owens, the company’s chief accountant at the time and later its CFO, steeled themselves to tell Scrushy there was no choice but to report the shortfall.
Scrushy, said Beam, turned red and began to tremble. He screamed at the two finance executives that they’d lost their minds, that the company would absolutely not report bad numbers because the stock would crash and there would be lawsuits.
“You guys won’t be rock stars anymore,” Beam quoted Scrushy as saying. “You know how to fix these numbers. Now go back to your offices and do it!”
I’m just going to ask you one question: Does this sound like anything you may say is “rhyming?”
Again, I am not saying it does. Yet, there are just things currently going on that are fascinating if only to just think through from a “what if?” type scenario. Again, if only just for a business thought experiment.
I would recommend to anyone, again, from a pure thought experiment standpoint, to not only view the past HealthSouth debacle, but also try and fit into true business terms, where 1+1=2 math is the base and guideline, and GAAP is applied in earnest and the standard as opposed to Non-GAAP.
And one last thing, which is also just one of those things that makes you go Hmmm…
Via Mark B. Spiegel’s Twitter™ account. Full disclosure: Mr. Spiegel is a very well known critic of Tesla, as well as short seller. To wit:
Regardless of Mr. Spiegel being either a critic or short seller. Those few words no longer appearing in their guidance doesn’t just speak volumes – it’s the equivalent of a library, in my opinion. Especially when you view it in the entirety of what is also happening concurrently.
As always, we shall see.
© 2019 Mark St.Cyr