SpaceX #8: The Most Egregious Securities Fraud in Recent Memory is Occurring Out in the Open

ESG Hound Throws down the gauntlet

Sep 28, 2021

Chapter 8: The “F” Word

Let’s say you’re the CEO of a publicly traded company. You’ve got a financial filing to submit next week but your CFO is missing, gone. Nowhere to be found. You’ve gotta make the numbers this quarter and so you rush out and hire someone with just a bookkeeping certification. They throw together your earnings report and 10-Q and submit it to the SEC. Top line revenues and profit margins are as expected so your company’s stock skyrockets. Someone, an analyst or a shareholder, starts digging through the records and the numbers don’t add up. Accounting 101 mistakes are littered throughout the document. They’re egrigiously bad. And lots of basic material disclosures are missing, misleading or incorrect.

Is this securities fraud?

Well yeah, it is.

Does it matter that the new CFO was wildly out of his depths?

It’s still fraudulent but an updated SEC filing disclosing the problem might make the ensuing civil case go easier.

What if someone points out how egregiously bad the numbers are and then no one in company management goes back and fixes it?

Now we’re warming up. This level of fraud went from civil and negligent to ongoing, knowing and criminal.

Now lets say the bookkeeper was instructed, by the CEO or management, explicitly, to leave material information out. Or to rename a standard accounting term into something that sounds exciting. Oh and by the way “YOU’D BETTER MAKE THE NUMBERS” was repeated endlessly to the hapless bookkeeper. What if a massive, multi-billion dollar federal government payout was as stake if you missed the numbers?

I’d say you’d be looking at the biggest corporate fraud in recent memory

That Scenario is Playing Out, Right In Front of Our Eyes

I feel like I keep discussing the same topic over and over again and yet I overlooked the most important part about the whole discourse:

NEPA a funding mechanism.

“Command and control” or “permit and punish” are the normal ways most US regulatory schemes work in environmental.

If these permitting schemes and associated fines for non compliance is a stick then NEPA is a carrot 🥕

Compliance with NEPA runs through the authorizing federal agency and approval of an Environmental Impact Assessment unlocks tremendous wealth. Denial or substantial delay of an environmental assessment is the opposite, it represents a real, tangible financial loss.

NEPA approval therefore meets any sort of “materiality” clause or definition in the Securities and Exchange Act. Any explicit misstatement or lie or any missing piece of information in a NEPA submittal that would change the outcome of a impact assessment, is therefore “Securities Fraud” if you are a subject officer or entity.

SpaceX and its corporate officers have committed securities fraud.

I don't say this lightly but it's plainly true.

While not publicly listed, SpaceX offers securities for sale to accredited investors. They have corporate bonds and debt that trades. SpaceX equity is held in mutual funds.

They sold private equity rounds just this year. What do you want to bet they sold these securities on promises of Starbases and Starships and big Kabooms in Texas? I'll take whatever odds you're throwing down.

A prolonged NEPA review would be a very negative financial outcome.

Here are some fraudulent claims in the Draft Programmatic Environmental Assessment (PEA)

-That the proposed stationary source would be a de minimus source of emissions. This is plainly false, as the source is a PSD Major Source under the Clean Air Act (1 of 28 named sources plus 100 tons of total site-wide CO emissions). The FAA's own NEPA guiding document discusses modeling as explicitly required for major sources under NSR/PSD.

Fraud count: 1

-The emissions inventories are wildly incorrect. Particular matter (PM) and SO2 emissions are excluded from the plant emissions, despite being clearly identified as relevant in AP-42.

Fraud Count: 2

-The CO2 emissions are off by a factor of ~100, which would push the facility into the Greenhouse Gas (GHG) PSD permitting rule. The EPA emission factors cited in the PEA table are not even followed.

Fraud Count: 3

-Construction of a pipeline would be required to make the gas plant and power plant run. No such pipeline exists. Installation of a pipeline needed to complete the proposed action is Clearly relevant to Environmental Impact assessments both generally and specifically.

Fraud Count: 4

-The “fuel pretreatment” facility is a cryogenic gas plant. Changing the name of something besides industry standard in order to obfuscate or confuse is clearly disallowed by “plain language” requirements in NEPA.

Fraud Count: 5

-Oil and Gas operations needed to support this facility are not disclosed, which is in clear violation of the FAA's own NEPA criteria to assess incidental and indirect impacts.

SpaceX included a discussion on commercial flight emissions as a result of airspace closures but not the increased gas drilling activity to directly support the plant? You think that omission was accidental or minor? Please

Fraud Count: 6

“Uhhh buhhh what about 420 Tweet?”

Elon Musk @elonmusk

Am considering taking Tesla private at $420. Funding secured.

Yes, Elon Musk suffered no real consequences from one of the other most egregious frauds in recent memory… but this one is different.

In the “funding secured” saga, only Elon Musk’s closest inner circle was involved in the conspiracy and after-the-fact cover up.

11 reviewers hired by the FAA who work for consulting firm ICF signed off on this trash. At least a handful of them eschewed their personal and professional obligations to rubber stamp completely shoddy work.

ESG Hound @ESGhound

FYI the FAA contracted employee from @ICF who did the Air Impact "Independent Evaluation" basically did the equivalent of a Structural PE stamping off on drawings without checking any load calculations. He must retract and resign

ESG Hound @ESGhound

LAST BIG @SPACEX POST OF THE WEEK IM GOING ON VACATION. This one is boring but should be the most important and legally sound finding I've made so far. It should kill the project dead. It might be too complex for many so here's the tl;dr https://t.co/YmaweB6BpM

But there’s one person who stands to lose more than anyone. One Mr. James R. Repcheck of the FAA. He certified this document. Under Tort law, he as the “responsible official” (RO) takes a specifically high level of personal risk in certifying the contents of this document.

There are numerous, countless even, problems with the PEA. The most egregious from a statutory and easy to comprehend standpoint is the complete whiff on the Clean Air Act PSD Major Source determination.

“If that oversight doesn’t kill the assessment, NEPA may as well not exist”
-An environmental lawyer friend of the Hound (FOTH)

👉I need from you: An Experiment in Collective Action

The beautiful part about how EPA and DoJ have historically determined the significance of a “Responsible Official” is that there is clear precedence to go after them, civilly and/or criminally if they *knowingly* certify something that grossly incorrect. Us air permit folks who have spent time in Oil and Gas know the joke that the RO is actually the “Designated Felon.” Corporate counselors hate this joke, but mostly because it’s true.

I don’t expect Mr. Repcheck to know the intricacies of the Clean Air Act. That’s why his responsibility is to review and check to the best of his knowledge or ability.

This PEA is a legal federal document, written by SpaceX and rubber stamped by a clown car full of clueless reviewers. As soon as the RO becomes aware of a material lie, misstatement or omission, his liability goes to level 11. Every day he’s aware of the significance of the oversite without de-certifying, his personal level of risk creeps up.

Kimbal would go to Jail for Elon; I'll bet Mr. Government mid level official wouldn’t

Send an email to The Responsible Official. (firstname.lastname at FAA dot gov probably works😉) and cc: your congressman.
Be polite but be short and to the point
Tell him some variation of “SpaceX’s proposed action under NEPA in Boca Chica is an egregious violation of numerous federal laws as the proposed site is a PSD Major Source under the Clean Air Act”
Mr. Repcheck should have the words “PSD Major Source” thrown at him as many times as we can. Don’t spam emails, don’t be rude and don’t be violent.
If this Responsible Official Sees “PSD MAJOR” and “CLEAN AIR ACT” enough times he cannot claim ignorance.
Once he knows the PEA is fraudulent and sloppy, he’ll talk to FAA counsel and have to decertify to minimize his personal risk.

This fact alone will definitely kill this PEA eventually, even if months down the line.

But I bet it's sooner. I doubt very much Mr. Repcheck is one of these folks:

ESG Hound