Author: folgado

The securities fraud complaint filed by the U.S. Securities and Exchange Commission against Tesla CEO Elon Musk contains an eye-opening view into the events leading up to the “funding secured” tweet heard round the internet.

And luckily, TechCrunch has read through the document and highlighted the most compelling details, including new insights from the SEC’s investigation.

But first, the nuts and bolts: The SEC filed a complaint Thursday in federal district court alleging that Musk lied when he tweeted on August 7 that he had “funding secured” for a private takeover of the company at $420 per share. Federal securities regulators reportedly served Tesla with a subpoena just a week after the tweet. Investigations can take years before any action is taken, if at all.

In this case, the investigation, which regulators say is continuing, progressed to a complaint within six weeks.

The SEC alleges that Musk violated anti-fraud provisions of the federal securities laws. The commission has asked the court to fine Musk and bar the billionaire entrepreneur from serving as an officer or director of a public company. That’s a big deal, and one Musk will certainly fight.

In a statement sent to TechCrunch, Musk described fraud charges an “unjustified action” that has left him “deeply saddened and disappointed.”

Here are some of the key takeaways and nuggets pulled from the complaint, which includes details of the SEC’s investigation:

The fund’s interest in Tesla

Musk met with representatives of a sovereign investment fund (Saudi Arabia’s sovereign wealth fund) three or four times beginning in January 2017. There was never a formal agreement, but the fund did express a “verbal desire” to make a big investment in Tesla and establish a production facility in the Middle East, according to the complaint. 

After months without contact, Musk met with the fund’s lead representative on July 31. This is when he learns the fund has acquired almost 5 percent of Tesla’s common stock.

According to the complaint, the representative expresses interest in taking Tesla private and asks about establishing a production facility in the Middle East. Musk said he was open to the idea, but did not make a commitment.

The representative did tell Musk that as long as the terms were “reasonable,” the fund would be fine with them. However, the pair never discussed specific deal terms during the meeting or talked about what would or would not be “reasonable.” Nothing was exchanged in writing, and there was no discussion of confidentiality, according to the complaint.

Musk did not communicate with representatives of the fund again about a going-private transaction until August 10, three days after his August 7 statements, the complaint states.

The Saudi sovereign wealth fund agreed in September to invest $1 billion into electric vehicle startup Lucid Motors.

The tweet was not some whim

Some have speculated that Musk’s August 7 tweet was just a silly impulse, particularly because the proposed shared price was a reference to marijuana. But regulators show in the complaint that Musk was talking to the board about an offer to take Tesla private as early as August 2 when he sent to Tesla’s board of directors, chief financial officer and general counsel an email with the subject, “Offer to Take Tesla Private at $420.”

The email laid out his reasons for wanting to take Tesla private, including that being public “[s]ubjects Tesla to constant defamatory attacks by the short-selling community, resulting in great harm to our valuable brand,” according to the complaint.

The $420 share price

According to the complaint, Musk calculated the $420 price per share based on a 20 percent premium over that day’s closing share price because he thought 20 percent was a “standard premium” in going-private transactions.

This calculation resulted in a price of $419. Musk stated that he rounded the price up to $420 because he had recently learned about the number’s significance in marijuana culture and thought his girlfriend “would find it funny, which admittedly is not a great reason to pick a price,” according to the complaint.

A 50-50 chance

Musk’s August 7 tweet indicated that funding had been secured. The complaint lays out a much different account.

Musk thought that there was “a lot of uncertainty” regarding a potential going-private transaction at the time of his August 2 email to Tesla’s board, “but it was worth investigating,” according to the complaint.

He believed at the time that the likelihood of consummation of a transaction was about 50 percent, the complaint says.

Permission granted, request ignored

Musk had a call with the board on August 3, the day after he sent the email. He told the board he wanted to contact existing shareholders to assess their interest in participating in a going-private transaction, the complaint said.

The board authorized him to contact certain investors and report back on those conversations.

Musk never spoke to any shareholders. He had a conversation with a private equity fund representative about the process, according to the complaint. But he didn’t contact any additional potential strategic investors to assess their interest.

He also did not provide the board with a specific proposal, contact existing shareholders to determine if they would remain invested in Tesla as a private company, retain any advisers or determine whether retail investors could remain invested in Tesla as a private company.

Four days after the call he sent the tweet.

An unprecedented transaction structure

During his conversation with a private equity fund partner, who had previous experience with such transactions, Musk said the number of Tesla shareholders needed to be below 300, according to the complaint.

But here’s the problem. Tesla had more than 800 institutional shareholders and many more individual shareholders at the time.

The private equity fund partner said the transaction structure that Musk was contemplating was “unprecedented” in his experience, according to the complaint.

Is it legit?

Musk’s August 7 tweet triggered a maelstrom of calls, emails and texts from the board, executive staff, analysts and press. Confusion was the theme early on.

In one example, Tesla’s head of investor relations, Martin Viecha, sent a text to Musk’s chief of staff (Sam Teller) about 12 minutes after the initial tweet asking “Was this text legit?”

Teller and Viecha would receive more communications from press and shareholders. One reporter emailed Musk asking “Are you just messing around?” The reporter wrote, “Reaching out to see what’s going on with your tweets about taking the company private? Is this just a 420 joke gone awry?”

Source: Tech Crunch

Earlier this year, the FTC settled with PayPal over the company’s handling of privacy disclosures in its peer-to-peer payments app Venmo, but Mozilla doesn’t think the changes Venmo made as a result went far enough. This week, Mozilla says it delivered a petition signed by 25,000 Americans asking Venmo to set transactions shared in its app to private by default, instead of public.

As Mozilla explains, “millions of Venmo users’ spending habits are available for anyone to see. That’s because Venmo transactions are currently public by default — unless users manually update their settings, anyone, anywhere can see whom they’re sending money to, and why.”

Many Venmo users likely feel that it’s not very dangerous to share through Venmo’s feed – a key feature of its popular payments app – that they paid back a friend for part of the dinner, drinks or some concert tickets, for example.

But a Berlin-based researcher, Hang Do Thi Duc, recently studied the risks associated with this sort of over-sharing.

Do Thi Duc analyzed more than 200 million public Venmo transactions made in 2017 by accessing the data through a public API. This allowed her to see the names, dates, and transactions of Venmo users. She found that a lot could actually be gleaned from this data, including users’ drug habits in some cases, as well as their relationships, junk food habits, location, daily routines, personal finances, rent payments, and more.

In other words, while the individual transaction itself may seem harmless, in aggregate these transactions can be very revealing about the person in question.

Mozilla says it, along with Ipsos, also polled 1,009 Americans how they felt about Venmo’s “public by default” nature. 77% said they didn’t think that should be the case, and 92% said they don’t support Venmo’s justifications for making them public. (It thinks sharing is fun, basically.)

Venmo didn’t respond to Mozilla’s petition directly, but tells TechCrunch via a spokesperson that its takes its users’ trust seriously.

“Venmo was designed for sharing experiences with your friends in today’s social world, and the newsfeed has always been a big part of this,” the spokesperson said. “The safety and privacy of Venmo users and their information is always a top priority. Our users trust us with their money and personal information, and we take this responsibility and applicable privacy laws very seriously,” they added.

The company also pointed out it takes several steps to ensure some level of user protection, including not making sensitive transactions public, never publishing dollar amounts, and allowing users to control the publicity of the item, even after the fact.

As part of the FTC settlement, Venmo also had to make other changes, as well.

The company now has to explain to new and existing users how to limit the visibility of transactions through the use of privacy settings.

We recently saw this in the updated Venmo app, in fact.

Users are walked through a tutorial that spells out how you can change settings to make transactions private by default, or any time you choose.

Mozilla’s petition comes at a time when PayPal has been weighing whether or not it should change the default in Venmo from public to private, according to a report from Bloomberg last month.

Thanks to large-scale scandals like Cambridge Analytica and others involving user data being overexposed, timed alongside the rollout of new privacy regulations like Europe’s GDPR, many companies are reviewing their data protection policies.

Venmo’s casual over-sharing now feels like a holdover from an earlier, more naive time on the web, and it wouldn’t be surprising if it decided to later adjust the app’s settings to match where consumer sentiment is headed today.

Source: Tech Crunch

A government watchdog has said that the Internal Revenue Service could do more to prevent tax fraud if it invested more money in ensuring that the identities of taxpayers are properly verified.

From the IRS’s own data, fraudsters scammed the agency out of at least $1.6 billion in tax refunds during the 2016 tax season that belonged to taxpayers. That’s a drop in the ocean to the $383 billion paid out in legitimate tax returns. But the new report by the Government Accountability Office said that the IRS still has a way to go to prevent further fraudulent activity.

“While IRS regularly assesses risks to and monitors its online authentication applications, it has not established equally rigorous internal controls for its telephone, in-person, and correspondence channels, including mechanisms to collect reliable, useful data to monitor authentication outcomes,” said the report. “As a result, IRS may not identify current or emerging threats to the tax system.”

In other words, the IRS can’t always guarantee that it’s you calling up about your tax affairs or logging in to the website.

That’s a problem because around tax season, scammers obtain tax returns or filings — through leaks or breaches — and use that information to impersonate taxpayers. By filing fake tax returns before the legitimate taxpayer does, the scammer can collect the fraudulently obtained return.

These breaches aren’t helping matters, said IRS chief information officer Gina Garza at a House committee hearing on Thursday. Indeed, the IRS had to clean up after its own data breach last year, in which 100,000 taxpayers had their tax information stolen — just two years after a separate IRS breach affected 300,000 taxpayers.

Although the government watchdog said that the IRS has made some steps to improve its taxpayer verification efforts, the agency “does not have clear plans and timelines” to implement guidance provided by the National Institute of Standards and Technology that would properly authenticate taxpayers.

One of the ideas was to notify taxpayers when a tax return had been filed in their name, which would help get ahead of scammers trying to cash in on fraudulent returns. But the watchdog said that the IRS hasn’t found the funding to roll out notifications.

Some of the measures could still take between six months and three years to complete, the report said, leaving millions of taxpayers to defend themselves against the ongoing threat of tax fraud.

The IRS accepted all of GAO’s 11 recommendations. IRS spokesperson Cecilia Barreda declined to comment further.

Source: Tech Crunch

Think Ethereum and other crypto coins are overvalued? Now you can make money when their prices fall via Compound, which is launching its money market protocol for shorting cryptocurrencies today. The Coinbase and Andreessen Horowitz-funded startup today opens its simple web interface allowing users to borrow and short Ethereum, 0x’s ZRX, Brave’s BAT, and Augur’s REP token, or lend them through Compound to earn interest.

Compound’s protocol isn’t just useful for crypto haters, or HODLers who want to generate interest instead of just having their coins gathering dust in a wallet.  “If/when Compound scales, this will lead to some really interesting improvements in market structure, namely, fairer prices” Compound CEO Robert Leshner tells me.

The startup spent the summer completing a security audit by Trail Of Bits and adding 26 hedge fund partners who will trade with Compound, offering liquidity to independent investors looking to be matched with borrowers or lenders. Next, the startup wants to offer a stablecoin on its protocol, bring in big financial institutions to add even more liquidity, and partner with a wallet provider to make signup faster.

Compound users visit its site through a Web3 browser such as MetaMask or Coinbase Wallet and enter their Ethereum price. They can then view the interest rates for borrowing and shorting or lending and earning interest for each of the supported tokens. Compound’s secret sauce is that those interest rates are set algorithmically based on demand, though eventually it wants a community governance body to oversee this process. “It ranges from 5 percent to 45 percent APR depending on how scarce liquidity is . . . in general, we expect supply to outnumber borrowing about 5-1, and borrowing rates to be about 10 percent”.

To make sure no one thinks they’re getting scammed, Compound is also releasing a transparency dashboard users can view to check up on all the assets moving through the protocol and see what Compound is earning. It charges 10 percent of what borrowers pay in interest, with the rest going to the lender. That margin is what attracted the $8.2 seed round for Compound that also included Polychain Capital and Bain Capital Ventures.

It could also make crypto exchanges like Coinbase or Robinhood less attractive to users because leaving their coins there comes with the opportunity cost of not lending them for profit. Meanwhile, shorts could pop the volatile crypto bubble and push prices to more sensible and stable levels. That’s market health is a critical precursor to big banks and traditional investors diving into crypto.

[Disclosure: The author owns small positions in Bitcoin and Ethereum, but has no financial motive for writing this article, did not make trades in the week prior to this article, and doesn not plan to make trades in the 72 hours following publication.]

Source: Tech Crunch

As Facebook execs took to the stage during the opening keynote for the company’s VR-focused Oculus Connect 5 conference, one thing was clearly missing, the founding team that had built the virtual reality startup Facebook bought for $2 billion in 2014.

None of the five original OculusVR co-founders took to the stage at the company’s big keynote, while Facebook executives including CEO Mark Zuckerberg, long-time VP of Ads Andrew Bosworth — now VP of VR/AR — and Hugo Barra, Facebook’s VP of VR, delivered the bulk of major announcements.

The absence of OculusVR co-founders onstage at Facebook’s biggest VR event of the year comes as a flurry of news circulates surrounding the former leaders of high-profile Facebook acquisitions. Earlier this week, Instagram’s co-founders Kevin Systrom and Mike Krieger announced they were unexpectedly leaving the company. Today, we heard more WhatsApp founder Brian Acton who left Facebook earlier this year and walked away from $850 million after growing dissatisfied with the direction of the company he originally built.

Oculus has had a more turbulent time at Facebook than other acquisitions, the company was at the center of a $3 billion lawsuit last year with ZeniMax Media over the founding of the company and the theft of intellectual property. Ultimately, Facebook was made to pay up $250 million.

Founder Palmer Luckey also proved to be quite the headache for Facebook’s public communications after his donation to an anti-Clinton group during the 2016 election led a firestorm of negative press. Luckey left Facebook last year. While the company’s other co-founders held onto leadership roles following the acquisition, a big shakeup at the end of 2016 downgraded the roles of then-CEO Brendan Iribe and then-VP of Product Nate Mitchell, with Xiaomi’s Barra coming onboard later to lead Oculus as Facebook’s VP of VR reporting directly to Zuckerberg.

The OculusVR co-founders have been taking more of a backseat role in the past couple of years at events as well. While Iribe and Luckey held a major presence during the keynotes at early conferences, last year, only Mitchell took to the stage. This year there were plenty of callbacks to Connect keynotes of the past with early employees like Chief Scientist Michael Antonov speaking about the future of the VR platform, but ultimately none of the startup’s original leadership were present onstage during the nearly 2-hour presentation.

As Facebook continues to shift its high-profile acquisitions away from autonomy and further under its core leadership umbrella, the future of founding leaders driving the public vision of the companies they originally built seems even more uncertain.

Source: Tech Crunch

Few properties seem better suited to tap VR than Star Wars, if only because… you know, lightsabers.

And Lucasfilm knows it. They’ve just announced Star Wars: Vader Immortal — a three part, at-home experience that’ll launch on Oculus’ just announced standalone Quest headset.

Alas, there’s not much to go on besides the name, a quick teaser trailer, and that it’s launching sometime in 2019. Lucasfilm does note that it’ll be a “yet untold story” that’ll take place across three episodes, with the story writing lead by Dark Knight writer David S. Goyer.

This isn’t the first time the Lucasfilm/ILM teams have dabbled with VR. They released a short one-off experience called Trials of Tatooine for the HTC Vive two years ago, and they worked with The Void to build massive, full-building VR game called Secrets of the Empire that launched at Disneyland last year. But Trials was short and experimental, and Secrets requires you to be in a very specific place in the real world. This one sounds like it’ll be a bit more substantial, and intended for a wider audience.

(* tangent: for what it’s worth, Secrets of the Empire is one of the more mind-blowing VR experiences I’ve ever had. I left feeling that it was a bit pricey for the amount of time it lasted, but I’m still thinking about how damned cool it was nearly a year later.)

More on this as we hear about it.

Source: Tech Crunch