Money Stuff: Bill Ackman Has a Trade for Eric Adams

If you went to a candidate in a US election, and you said to him “I will pay you $1 million to drop out of this race so that my preferred candidate can win,” would that be legal? It sure seems illegal, but (1) nothing in this column is legal advice and (2) in US politics these days, people casually do a lot of stuff that they wouldn’t have even considered doing a few years ago, so who knows. Here’s a 2016 Bloomberg Opinion column by Stephen Carter arguing that it is illegal to pay a candidate to drop out of a race, but that it shouldn’t be.

If you were a candidate in a US election, and you decided that you would rather have $1 million than win your election, could you find a way to get paid $1 million for dropping out? Let’s assume that going to your opponent’s richest backer and saying “please give me $1 million to drop out” would be frowned upon. But in 2025 there are prediction markets, and if your election is high-profile enough, then there might be a trade here. The trade is:

1. If you are trading at, say, a 40% probability of winning, sell 2.5 million contracts on yourself for $1 million (40 cents each).
2. Announce you’re dropping out.
3. Your contract resolves to zero (you won’t win) and you keep the $1 million. [1]

Does that work? Can you trade $1 million of election contracts without moving the price much? My sense is that a lot of US election contracts are not especially liquid, and that if you start selling a lot of your contract people, will get suspicious and the price will plummet. But I suppose those markets are getting more liquid by the day. In particular, as prediction markets become a favored way to bet on sports (because somehow they get better US regulatory and tax treatment than traditional bookmakers), they should become a more liquid way to bet on politics. A traditional objection to prediction markets is that, as Nick Whitaker and Zachary Mazlish put it, “prediction markets are not a natural gambling device, due to various factors including their long time horizons and often esoteric topics.” But that was last year, when prediction markets were separate from sports betting. Now you can bet on sports on prediction markets, and sports (1) are very popular with gamblers and (2) happen constantly. If gamblers have good reason to log into prediction markets every day, probably they’ll bet on some elections too. And if the market is full of gamblers, maybe you’ll be able to put on a $1 million trade against yourself. 

Is that illegal insider trading? I don’t know, man. I guess the three points I would make here are:

1. Nothing in this column is ever legal advice.
2. Insider trading rules in prediction markets are variable and unsettled, and it’s not entirely clear to me whether and to what extent, say, Polymarket allows insider trading. 
3. But let’s assume that you are trading on a US prediction market (like Kalshi, or soon enough Polymarket) regulated by the US Commodity Futures Trading Commission as a futures exchange. US commodities regulation does have rules against “insider trading.” But especially in commodities trading, as I like to put it, “insider trading is not about fairness, it’s about theft.” A trader for an oil company is not allowed to trade on her own account to front-run her company’s trade, but the oil company is allowed to trade for its account using its own knowledge of its production plans. As CFTC Commissioner (and now Acting Chair) Caroline Pham once put it, commodities insider trading is illegal only if it involves “misappropriated confidential information in breach of a pre-existing duty of trust and confidence to the source of the information,” not any use of material nonpublic information, because of “the special characteristics of the derivatives markets, where end users necessarily trade on the basis of their own proprietary information in order to hedge their risks.” [2] Here, if your campaign manager went and traded ahead of your announcement that you’re dropping out, that seems like it might be insider trading. But if you trade ahead of the announcement? It’s your information! You’re the principal! You’re trading on your own intentions. That strikes me as the legal sort of commodity insider trading, though I should emphasize that we are in extremely uncharted waters here and I really have no idea.

Is it … an election crime? Is it bribery, or election fraud, or a campaign finance violation, or something? Here again I have no idea. Last year, the then-chairman of the CFTC argued that prediction markets on elections “would put the CFTC in the role of an election cop.” It seems sort of like getting paid to drop out of an election would be … you know, the sort of thing that election law frowns upon? But in this scenario you are not getting paid by a person who wants you to drop out. You’re getting paid by the invisible hand of the prediction market.

There is an election going on for the next mayor of New York City; the candidates are Zohran Mamdani (the betting-market favorite), Andrew Cuomo (the disgraced former governor), Eric Adams (the disgraced current mayor) and Curtis Sliwa (the Republican). [3]  As of this morning, I see Mamdani at 80% on Polymarket, with Cuomo at 18% and Adams and Sliwa at 1% each. Most polls show Mamdani getting a plurality of the vote, but not a majority, with Cuomo in second place; it’s plausible that if Adams or Sliwa dropped out, most of their support would go to Cuomo and would significantly increase his chances of winning.

Some people might prefer that, most of all Bill Ackman, who supports Cuomo and who loves to have fun on X (formerly Twitter). This weekend he tweeted:

Polymarket gives @andrewcuomo a 15% chance to win and a 7-1 payoff for the win. Andrew’s odds improve dramatically if Eric drops out, and even more with @CurtisSliwa out. 

The experts I trust predict the odds shift to approximately 50/50 in a one-on-one Cuomo/Mandami election. If the field narrows soon, the odds get even better for Cuomo. 

If I were Eric Adams, I would look at myself in the mirror and ask myself whether I should continue to risk my reputation on a 1/100 moonshot when the alternative is taking the high road and doing what is best for NYC. 

I strongly believe that what is best for NYC — Eric stepping aside — is also what is best for Eric Adams. Eric should know that goodwill is a very valuable asset and the alternative is a very costly liability. ...

The mirror does not lie. Eric, please take a close and hard look. 

And to fund your future, you could place a large bet on Andrew Cuomo and then announce your withdrawal from the race. There is no insider trading on Polymarket.

Well! That’s debatable, is I guess my point about the insider trading. [4]  But I’m not sure he’s wrong? Though I’m also not sure that Adams could “fund [his] future” by betting on Cuomo on Polymarket [5] : When I checked today, the largest Cuomo holder had 530,974 contracts, which would pay off $530,974 if Cuomo wins, and which would be worth around $265,000 if Cuomo’s chances jump to 50/50. To make, say, a million dollars, Adams would need to buy 3,125,000 Cuomo contracts at $0.18 each ($562,500 total) and sell them at $0.50 each ($1,562,500 total) when he drops out. That might be hard to pull off. 

One more hypothetical. Let’s say you want to pay a candidate $1 million to drop out of an election. You say to him “hey, look, if I hand you $1 million in cash, that’s a crime. But if you want to bet against yourself on prediction markets, you could make a lot of money.” He’s no dummy, though, and he replies “sure you say that, but this contract is not very liquid and I doubt I could extract $1 million by betting against myself.” You think about this and say “hmm, I see what you mean. But what if someone else stepped into the market to bet $1 million on your contract? Then there’d be plenty of volume to offset your trading, and you’d easily be able to get the $1 million. Effectively you’d just be betting $1 million against that mysterious person, though instead of a bilateral bet you’d be doing it on the public prediction market. If that mysterious person showed up and started buying tomorrow morning, would you be interested in a trade?”

And then if turns out that you are the mysterious person, well. Is that … bribery? Is it insider trading? Is it market manipulation? 

Depending how you count, Elon Musk owns about 15% of the stock of Tesla Inc. [6] Tesla’s market capitalization is about $1.17 trillion as of Friday’s close, making Musk’s stake worth about $178 billion. Musk is the wealthiest person in the world, and roughly half of his fortune is in Tesla stock and options.

Musk has quite notably built Tesla from a small electric-car company to a large electric-car-and-solar-rooftop-and-humanoid-robot-and-some-other-stuff company; he has overseen the growth to a trillion-dollar market cap. And he is ambitious and would like Tesla to grow even more. What if it grew to, say, an $8.5 trillion company? Well, then, Musk would be even richer than he is now. (Now he is the richest person in the world.) Specifically, at an $8.5 trillion market capitalization, Musk’s current stake in Tesla would be worth about $1.3 trillion.

What could Musk buy with $1.3 trillion that he can’t buy with $178 billion? I mean! Various things! Obviously the extra money will not make a material difference to, like, the food he eats or the thread count of the sheets he sleeps on or even the art he could put on his walls if he put art on his walls; he is already extremely post-economic in his consumer spending ability. But he has other, more expensive desires. Could he more easily buy, say, elections with a trillion dollars than he can with a few hundred billion? Conceivably? When he bought Twitter Inc. in 2022, he was able to write a $44 billion check, but it took him a few days to move money around to do it; perhaps as a trillionaire he could just put that on his credit card. Also his main goal seems to be colonizing Mars, which is expensive. An extra trillion dollars couldn’t hurt.

What about an extra two trillion dollars? Bloomberg’s Dana Hull reported Friday:

Tesla Inc. proposed a new compensation agreement for Chief Executive Officer Elon Musk potentially worth around $1 trillion, a massive package without precedent in corporate America.

The long-awaited proposal, designed to incentivize Musk to lead Tesla for years to come, sets a series of ambitious benchmarks he must meet to earn the full payout, including expanding Tesla’s nascent robotaxi business and growing the company’s market value to at least $8.5 trillion from around $1 trillion today. The plan spans 10 years.

The additional shares Musk could receive would push his stake in the electric-vehicle maker to at least 25%, according to the terms detailed in Tesla’s proxy filing Friday. Musk has publicly stated he wants a stake of that size.

Here is the proxy filing. I guess my main thought is, yes, giving Musk $1 trillion to turn Tesla into an $8.5 trillion company is (1) expensive and (2) ambitious, but even without the new compensation proposal, Musk would get $1 trillion for turning Tesla into an $8.5 trillion company. (With the new proposal he would get $2 trillion, give or take.) If you are sitting down to draw up a plan to incentivize behavior, and you think “hmm if we just give Elon a trillion dollars he will create $7 trillion of shareholder value,” then that is kind of a weird thing to think, but also you don’t need any more incentives. Just his existing share ownership will make him a trillionaire for doing that. I suppose if your thought process is “$1 trillion is not enough of an incentive, but $2 trillion would be,” then you have to give him more shares. Why would that be the cutoff? Are there elections you can buy for $2 trillion that are out of reach with $1 trillion? This is all very far beyond my experience. 

I suppose the obvious point here is that the new share grant is not, at this point in Elon Musk’s wealth journey, an economic incentive. It is a grant of ownership. Musk, the chief executive officer and Technoking and largest shareholder and founder-with-an-asterisk of Tesla, is dissatisfied with his ownership percentage. He would like to own 25%, and he doesn’t (in part because he sold some stock to buy Twitter?), and he has threatened to take his robots elsewhere if he can’t get to 25%. If he owns only 15%, perhaps an activist shareholder could come in, accumulate a few hundred million dollars’ worth of stock, persuade other shareholders that Musk is bad for shareholder value, and take over the company, ahahahahahahahahahahahaha no come on that can’t happen. But Musk wants more shares anyway. And in the somewhat fraught negotiations between Tesla and Musk — who has a lot of other potentially lucrative demands on his time! — the board wanted to give him what he wants. Which is 25%.

Tesla’s proxy includes the report of the special committee of the board of directors that came up with the compensation package; the report is clear that (1) Musk demanded 25% and (2) the committee went and solved for that outcome:

For the remaining meetings between the Committee and Musk, the Committee primarily focused on negotiating the terms of the 2025 CEO Performance Award and understanding what it would take to keep Musk at Tesla and incentivized to achieve extraordinary growth and results for Tesla. During negotiations, Musk reiterated that it was crucial that he both acquire at least a 25% voting interest in Tesla and that he receives assurances that he will be fully paid for his past services under the 2018 CEO Performance Award in order to remain at Tesla. Musk also raised the possibility that he may pursue his other interests and leave Tesla if he did not receive such assurances. The Committee further discussed and tested these positions throughout its negotiations and determined that Musk’s sentiment was genuine.

I do not fully understand it, but I believe it. (Bloomberg Opinion’s Liam Denning writes: “Nice stock price tied to faith in the genius of one man you’ve got there; be a shame if he left.”) Musk thinks that he should own 25% of Tesla, but he doesn’t. It is not exactly customary for a trillion-dollar public company to hand its CEO 12% of its stock to get him up to his target ownership, but that was the ask, and the special committee figured out how to deliver it. The way to deliver it is to make the extra 12% contingent on very ambitious market-cap and operational goals: Musk wants a lot of stock, but he is extremely self-confident, so telling him “we’ll get you to 25% if you hit all these crazy targets” satisfies his need for 25% while also letting the special committee argue that it is paying for performance and maximizing shareholder value. Honestly it’s a fine solution to the problem facing the special committee! It’s just a weird problem.

Elsewhere in the Tesla proxy, there’s a shareholder proposal about investing in xAI. Bloomberg’s Kurt Wagner reports:

Tesla Inc. shareholders will vote in November to decide if the electric carmaker should invest in Elon Musk’s closely held artificial intelligence startup, xAI.

The planned vote, which was part of a shareholder proposal disclosed Friday in Tesla’s annual proxy statement, could further entwine Musk’s business empire. XAI, which Musk started in early 2023, already merged with his social networking company X in March. SpaceX, Musk’s private rocket business, also invested $2 billion into xAI earlier this year.

The board made no recommendation on whether shareholders should vote for or against the proposal.

Here is the proposal, from a Stephen Hawk of Gulfport, Florida. (“The shareholders of Tesla, Inc. request that the Board of Directors authorize an investment in xAI, in an amount and form deemed appropriate by the Board, to capitalize on the synergies between the two companies and strengthen Tesla’s position as a leader in AI, robotics, and energy.”)

We have previously discussed the oddity of this. Ordinarily the CEO of a public company is the one making decisions about capital allocation. Companies do not normally make investment decisions based on nonbinding proposals from retail shareholders. If the CEO (Musk) thinks that investing in xAI is a good idea, he should bring the idea to the board, which should consider it; because of the potential for conflicts of interest (Musk is the CEO of Tesla and main owner of xAI), if the board concludes it’s a good idea then it should probably ask the shareholders to approve it. But that would be a proposal from the board, laying out the proposed investment and potential conflicts of interest. If Musk doesn’t think that investing in xAI is a good idea, then he shouldn’t do it, and the board should probably recommend against the shareholder proposal or even try to exclude it from the proxy. But instead, because everything at Tesla is weird and meme-y, what happened is that Musk went on Twitter and solicited a shareholder proposal for Tesla to invest in xAI, and he duly got one, and the board, knowing that Musk asked for it, can’t recommend against it. Does Musk think that Tesla should invest in xAI? Should he or the board of directors lay out the case for that? Ehh, no, let’s just check the shareholder vibes first.

One recurring theme around here is that ordinary investors want to buy SpaceX stock, but they mostly can’t. SpaceX is a private company; it is not allowed to sell stock broadly to the general public, and it mostly doesn’t want to. SpaceX will occasionally arrange trades between its big institutional investors and its employees, but it is not looking to include retail investors in those trades. [7]

But there are various smallish imperfect ways to access SpaceX stock. There are special-purpose vehicles that acquire some SpaceX shares and then sell participations to outside investors. Several brokers, including Robinhood, have created “tokens” intended to reflect the economic value of SpaceX stock. You can buy shares in the Destiny Tech100 closed-end fund, which owns some SpaceX. 

Because there is a lot of retail demand for SpaceX exposure, and because there is only so much supply in these smallish imperfect vehicles, “retail SpaceX” tends to trade at a premium. The Destiny Tech100 fund trades at a 400% premium to its net asset value. Some SPVs sell SpaceX exposure at a significant premium to its institutional valuation, and also charge high fees. My general view is that if you have $100 of SpaceX stock — or OpenAI or Stripe or other big household-name private tech companies, but especially SpaceX — then you can sell it to retail investors for $200.

Here’s a stylized description of EchoStar Corp.:

1. It owns the rights to use a bunch of wireless spectrum.
2. It uses some of that spectrum to provide satellite broadband connections, wireless phone service (Boost Mobile) and television (Dish Network) to customers.
3. As of last Friday, EchoStar’s equity market capitalization was about $19.3 billion.
4. Over the weekend, it sold some of its spectrum to SpaceX for $17 billion, or about 88% of its market capitalization at the time.
5. It would not be quite right to say “EchoStar sold 88% of its assets to SpaceX” — it also has a lot of debt, and the spectrum it sold does not really represent the large majority of its assets — but it is true that EchoStar has been selling off spectrum (it did another $23 billion deal with AT&T a few weeks ago) and has warned investors about its ability to continue as a going concern. 
6. So you could have a very stylized model like “EchoStar is in the process of transforming from a collection of wireless service providers and spectrum rights into a pile of cash, which it can use to pay off debt and return the rest to shareholders.”
7. Except that it didn’t sell its spectrum to SpaceX for cash, or not just for cash. It sold the spectrum to SpaceX for $8.5 billion of cash and $8.5 billion of SpaceX stock, with the cash going largely to pay down debt.
8. Transforming from a wireless company into a pile of cash is one thing. Transforming into a pile of SpaceX stock is more interesting.

EchoStar’s stock was up this morning; as of noon, its market capitalization was about $22 billion. It would not be quite right to say that EchoStar is a publicly traded SpaceX tracking stock: EchoStar has lots of assets that are not SpaceX stock, and lots of liabilities besides, and if you buy EchoStar stock you are not getting pure SpaceX exposure.

You are getting a certain amount of SpaceX exposure, though. And over time that exposure might get cleaner, if EchoStar does go and sell off a lot of its spectrum and operating businesses and uses the cash proceeds to pay down debt and return money to shareholders. It could end up as something close to a public company owning mostly $8.5 billion of SpaceX stock. And that’s surely worth more than $8.5 billion.

This is what a Ponzi scheme looks like (allegedly!):

That is from the complaint in a Securities and Exchange Commission enforcement action against Daryl Heller, who ran an automated teller machine network. He raised money from investors, bought ATMs, gave them a promised fixed return on their investment and kept the rest. In 2017, the ATMs brought in more than he owed investors. In 2018, same. In 2019, they brought in less than he owed investors, so he had to raise more money from new investors to pay out the old ones. That left him with more investors to pay out, so in 2020, while the ATMs brought in a bit more than they did in 2019, he owed investors twice as much, and he didn’t come close to covering that. It snowballed from there, until by 2023 he was underwater by about $130 million. Oops. From the complaint:

Defendants knew that between 2017 and 2024, the ATMs owned by the ATM Funds generated insufficient revenue to pay the promised distributions to investors. Defendants also knew that during this period, they were using new investments to pay earlier investors because of this shortfall and that Heller was taking tens of millions of dollars for other improper purposes, including to support other businesses he owned.

The business started in 2011, so it’s not like it was all Ponzi from the get-go. But if you owe investors more than you can pay them, you have a choice of (1) looking them in the eye and delivering disappointing news or (2) doing some Ponzi. Allegedly he went with the second choice.

The most traditional way to do a Ponzi is to take the new investor money and hand it directly to the old investors, without bothering with buying ATMs. But Heller seems to have started legit, and wanted to stay legit, so he allegedly bought ATMs with some of the money, but just barely:

In practice, Heller directed Paramount to use investor monies to buy inexpensive ATMs or used and, at times, damaged ATMs with missing keyboards and hard drives, at prices that were much lower than what Paramount reported to the ATM Funds.

Oftentimes, Paramount, at Heller’s direction, then stored the ATMs in warehouses around the country where they remained offline and generated no income at all.

I feel like it would be more efficient to skip buying them entirely, but I guess you feel a little better if there are actually ATMs lying around.

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