The big news from the tech and finance world on September 27, 2018
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
The SEC is seeking to have Musk banned from serving as an officer or director of any public company. Their reasoning? Musk was lying about having funding secured. This implies that he was trying to manipulate Tesla’s share price in an upward direction. Well, it worked, for about a day, that is. On the day of the tweet, Tesla’s share price rose to a high of $379.87 US per share from its previous price of around $350 per share, before falling back to $352 the next day (August 8, 2018). If the markets had actually believed Musk’s Tweet, Tesla’s share price likely would have climbed closer and closer to the mythical $420 price as the take-private day neared.
Instead, Tesla’s share price dropped like a rock because every savvy investor realized that Musk’s statement was either pure fanciful bluster, a joke about weed, or both. Of course, today has been much worse for Tesla’s share price than any of Musk’s recent ill-advised tweets. In after-hours trading, Tesla’s share price is down as much as 13%. That’s a lot and it is falling dangerously close to their 52 week low. This is all especially troubling considering that Tesla is expected to announce their best quarter ever, in terms of cash flow, in a few days.
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So, what is the SEC doing, was it possible to predict this, and could AI make this type of situation any better? The answer to the first question is unclear, however, the answer to the second two questions is likely, yes.
AI is already being used in the legal profession to help identify responsive documents that must be turned over to the opposing party during a lawsuit. MIT Professor Emeritus Frank Levy leads a research that helps law firms apply machine learning software to the practice of law.
If AI can predict what documents will be useful in a lawsuit, then whenever the CEO of a publicly traded company does something suspicious, it should be possible to use these same programs to parse historical cases and see what precedent there is for a lawsuit to be filed. At the very least, it could provide some insight into the likelihood of an indictment and, in the future, could even suggest potential courses of action for a company to take if it found itself in this type of situation.
Would the AI be able to help predict whether or not Elon will be convicted? Possibly. While I am not aware of any AIs currently being used to predict the outcome of legal matters, in my September 24, 2018 column, I covered the AI that perfectly predicted the outcome of last year’s Superbowl. While legal cases may be more complicated than a football score, there is likely several orders of magnitude more data about the outcome of various lawsuits than there is about football players, simply because there are WAY more lawsuits than there are football teams.
From a financial perspective, we could use this type of AI to predict potential lawsuits and their results and train the AI to make trades based on these predictions. If these types of AI were already in use, we could expect much smoother and more predictable share prices as the effect/implications of a particular news story would become apparent almost immediately after the information surfaces.
For now, I’ve programmed a simple AI for Elon Musk to help him decide if he should tweet something or not. You can try it, too, if you’d like. It’s posted below: