This week we’ll see the inauguration, a TikTok ban and technology earnings start to line up. This might not be my best weekly note ever (though it might), but it certainly is the prettiest. Hope you enjoy the unusual amount of artistic content! 

As always, I’m focused on three things:

1. Technology-driven-change;

2. the latest startup trends and;

3. stock fraud. 

In This Note:

• Texas Hold’em: TXN’s High-Stakes Q4

• Musk Busted Again By The SEC

• Tweet ‘O The Week

• Mark Lombardi’s Conspiracy Theory Art

• Upcoming Events We’ll Be Following

• Epistrophy In The News

• My Plans This Week

Texas Hold’em: TXN’s High-Stakes Q4

Next week's earnings report from Texas Instruments Incorporated (TXN: NASDAQ), the arguable apex predator of analog, will shed stark light on this semiconductor laggard. With a sprawling portfolio of 80,000+ products powering everything from toys to Tomahawk missiles, this American chip champion's performance has struggled of late.

The January 23rd Q4 update comes after an anemic Q3 with $4.12B in revenue and $1.38 EPS. The company has now posted ignominious streak of eight straight quarters of year-over-year sales declines, thanks largely to bloated inventories gathering dust in customers' warehouses.  

As a former TXN bear, I'm watching with keen interest to see if CEO Haviv Ilan and company can back up their bold bluster. On a December call, cEO Haviv Ilan crowed about turning the corner on inventories, citing “a very quick correction” and a “very, very rapid” recovery ahead. But we’ll believe it when we see it. 

The linchpin of TXN's strategy is a contrarian play. Amid an industry-wide trend toward just-in-time inventories and razor-thin margins, TXN is deliberately overproducing a subset of its catalog, reasoning that ubiquity and longevity make obsolescence a trivial risk. In theory, that positions TXN to snatch share when demand roars back.

But in practice, it's a precarious high-wire act – especially with the timing of that demand resurgence still unclear. While bright spots like AI, automation, and auto electrification portend explosive secular growth, the near-term outlook remains stormy. My numbers are slightly below the Street, where I expect Q4 revenue cratering another 8% year-over-year to $3.75B, with EPS down nearly 16% to $1.16. But I hope they prove me wrong. 

That said, if Ilan & Co. can deliver stabilizing revenues, shrinking inventories, and a credible path back to EPS growth, TXN could be off to the races. 

Musk Busted Again By The SEC

I've watched Elon Musk's battles with the U.S. Securities and Exchange Commission (SEC) closely over the years. As a technology analyst and fraud investigator, what stands out to me is this: In case after case, Musk brazenly broke the rules, helping him make over $150 million at the expense of other Twitter. shareholders. And he's gotten away with it for far too long.

Musk’s SEC rap sheet is long. In August 2018, Musk recklessly tweeted that he had “funding secured” to take Tesla (TSLA: NASDAQ) private at $420 per share. Those two words sent Tesla stock soaring 11% that day. But it was false - there was no such funding deal in place. 

The market manipulation was obvious. Musk had millions in loans supported only by Tesla stock price. By tweeting a lie, Musk was able to briefly inflate Tesla's stock price, benefiting himself as a major shareholder. The SEC charged him with securities fraud. Musk reluctantly settled, agreeing to pay a $20 million fine, step down as Tesla chairman, and have his tweets vetted by lawyers.

Most executives would have learned their lesson. Not Musk. He called the SEC the “Shortseller Enrichment Commission” and said “I do not respect them.” In 2019, the SEC sought to hold Musk in contempt for violating the settlement by tweeting Tesla production projections without approval. It was a test of the settlement's teeth. But after Musk and the SEC reached yet another compromise, it proved toothless.

Fast forward to March 2022. Musk began amassing a stake in Twitter, crossing the 5% threshold on March 14th. SEC rules clearly require disclosure via a Schedule 13D filing within 10 days of passing 5% ownership -- in this case, March 24. This rule is the foundation of market transparency and fairness. It’s like a regulatory speed limit, ensuring no investor can build a controlling position in secret. 

Musk blew right through that 55 mph speed limit at 110. He kept his Twitter stake hidden, continuing to buy shares on the cheap 21 days after crossing that threshold. By the time he finally disclosed crossing the 5% mark on April 4, Musk had accumulated 9.2% of Twitter, a 38% increase from his position on March 24. According to academics and the SEC, Musk pocketed over $150 million in savings by delaying disclosures and buying stock at artificially low prices. Other investors were left in the dark as he accumulated shares and influence. When Musk's stake finally was revealed, Twitter shares soared 27%, instant evidence of the value of this transparency to markets.

It was an outrageous breach of the Williams Act, passed in 1968 to help protect shareholders from the very type of covert takeovers Musk attempted to pull off. The law strikes a careful balance between acquirors' needs for discretion in building a position and shareholders' rights to know when a new investor gains significant clout in a company's direction. 

With one stroke, Musk made millions while shredding both the letter and the spirit of these shareholder protections. The SEC had to act decisively.

But what did the SEC do initially? Nothing. For months, there was no sign of any consequences for Musk's flagrant violation. He thumbed his nose at regulators once again, calling the agency a “totally broken organization.” Talk about hubris.

Making matters worse, Musk then proceeded to obstruct and delay the SEC's investigation into his misconduct. The SEC sought to depose Musk at least three times in 2023 and 2024 regarding the Twitter disclosure violations. But Musk repeatedly refused to cooperate, skipping scheduled depositions. At one point, a frustrated federal judge had to order Musk to sit for testimony after he complained the SEC probe was an overreach. Musk's legal team fought the SEC at every turn, accusing the agency of harassment while dragging the investigation out for years. In December 2024, the SEC offered to settle the matter if Musk paid a fine, but he refused, setting the stage for a lawsuit. Musk's evasive, combative approach to the SEC probe underscores his brazen disregard for securities laws and disdain for regulatory oversight.

Finally, in January 2025, the SEC filed a lawsuit against Musk, nearly three years after his stealth Twitter grab began. The complaint details how Musk knowingly ignored disclosure requirements to avoid paying higher prices in his takeover bid. That's three years Musk has made a mockery of securities laws, daring regulators to act. 

The SEC complaint seeks to force Musk to pay back the profits he made on shares purchased after March 24, 2022. It also asks for punitive financial penalties. It's about time.

Importantly,Musk's violation is what’s called a “strict liability” offense. Speeding tickets or building code violations are also “strict liability” offenses – it doesn’t matter whether he intended to break the rules or not – you can still get busted. This is akin to a speeding ticket - you're guilty if you're going 110 in a 55, even if you didn't see the sign. Musk can’t claim ignorance as a defense.

Throughout this saga, Musk has benefited enormously while skirting the disclosure rules everyone else has to follow. But Musk's disdain for the SEC didn't begin with Twitter. In fact, this is just the latest in a long series of transgressions:

1. August 2018: The infamous "funding secured" tweet regarding Tesla going private. SEC charges Musk with securities fraud.

2. September 2018: Musk and Tesla each pay $20 million fines to settle SEC charges. Musk forced to step down as Tesla chairman for 3 years and have lawyers approve certain tweets.

3. February 2019: SEC seeks to hold Musk in contempt for violating settlement with unapproved tweet about Tesla production numbers.

4. April 2019: Musk and SEC reach new agreement clarifying oversight of his tweets. 

5. March 14, 2022: Musk passes 5% ownership of Twitter, SEC disclosure required within 10 days.

6. March 24, 2022: Musk misses SEC deadline to disclose 5%+ stake in Twitter. Continues buying shares.

7. April 4, 2022: Musk finally discloses 9.2% stake in Twitter, 11 days late. Reveals he filed the wrong form. Stock soars 27%.

8. April 2022: Musk offers to buy Twitter outright for $44 billion.

9. October 2022: Musk completes Twitter deal after trying to back out. Company goes private. 

10. January 2025: SEC sues Musk for failing to timely disclose Twitter stake in March 2022.

The pattern of misbehavior is brazen and goes back years. He exhibits contempt for securities laws, shareholders transparency and American rules.

Don’t get me wrong. Musk loves America. Musk wants the benefits of a robust and trustworthy public market. Musk wants everyone else to play by the rules because he understands that those rules create value. Transparency and fairness give American markets value. But Musk doesn’t want those same American rules to apply to him.

Tweet ‘O The Week

Mark Lombardi’s Conspiracy Theory Art

The recent launch of “The Illuminator: Art, Conspiracy and Madness" a podcast by Brazen has reignited interest in Mark Lombardi's work, examining how his fusion of journalism and art continues to uncover corruption twenty years after his death.

Lombardi also created a tool that a select group of hedge funds use for investigating shorts.

Born in Syracuse, NY in 1951, Lombardi failed as a painter before discovering his true medium: network diagrams mapping financial scandals. In 1994, he began creating “narrative structures” – visualizations of political and financial connections drawn from public documents. He tracked relationships on 14,000 index cards, translating data into webs of graphite and red pencil on paper.

Working from his Williamsburg studio, Lombardi merged journalism with art. He studied financial records, news reports and government documents, distilling complexity into flowing diagrams. His innovative method redefined conspiracy theory art. Using curved lines and circles, he connected politicians, financiers, and criminals across time and space. Each drawing went through multiple versions as he refined both facts and form. This marriage of data and aesthetics preceded our era of digital visualization by decades.

One piece proved prophetic. His "BCCI-ICIC & FAB, 1972-1991 (4th Version)" mapped Bank of Credit and Commerce International operations so precisely that FBI agents studied it after 9/11 to understand terrorist financing networks.

The scope of his investigation widened over time. “George W. Bush, Harken Energy, and Jackson Stephens, ca 1979-90” revealed questionable dealings in Bush's business career. “Oliver North, Lake Resources of Panama, and the Iran-Contra Operation” illuminated illegal arms sales. His “World Finance Corporation and Associates, ca. 1970-84: Miami-Ajman-Bogota-Caracas” exposed connections between American politicians, drug cartels, and Gulf state royalty. The seven versions of this piece traced relationships between Guillermo Hernández-Cartaya's World Finance Corporation and figures like former CIA director William Casey, Philippines First Lady Imelda Marcos, and Adnan Khashoggi, then the world's most prolific arms dealer. Every piece combined investigation with visual clarity.

These works achieved what text alone could not – they made invisible networks visible. 

After decades of obscurity, galleries and museums discovered him in the late 1990s. Twenty Lombardi works now reside at MoMA, with others at the Smithsonian, the  San Francisco Museum of Modern Art and the Whitney Museum. One of his unfinished pieces “Lincoln Savings - Charles Keating” hangs in my home (see above.)

On March 22, 2000, at the peak of his success, Lombardi was found dead in his studio. The circumstances remain disputed.

For me it started with two circles on a big piece of paper. I was investigating the labyrinthine relationships behind InterOil (IOC:NYSE) a long forgotten natural resources debacle. I was massively short and losing money, down a few million. My boss demanded a writeup of my thesis. And after sweating through my notes for ten hours, I presented him with a carefully prepared dozen pages of this byzantine story. He read it, then came to my desk and said, tersely: “On page 3 you referred to the predecessor corporation as ‘PIE Group’ and on page 11 you referred to it as ‘PIE Corp.’: Which is it?” 

After another hour pouring over more notes, I went back to his desk. “I can’t figure it out – in some places it’s PIE Group, in others it’s PIE Corp.” I said. “I’m confused.”

“You’re fucking confused because they’re trying to fucking confuse you!” he exploded. “It’s working!”

I turned to leave his office, certain that I was about to be fired. Walking out, I glanced at the giant Lombardi drawing “Inner Sanctum: The Pope and His Bankers Michele Sindona and Roberto Calvi, ca. 1959-82 (5th Version)” on the wall next to his desk. My head was spinning.

In desperation, I went to the Xerox machine and pulled out a big piece of paper and drew two big circles. I wrote “PIE Group” in one, and “PIE Corp.” in the other. Then I went back to my pile of notes and wrote down every person connected in every lawsuit, corporate registration, SEC filing and news clipping. I stayed at it until midnight and was back at it the next morning at 5 am, drawing circles and lines. 

It turns out the Chairman and CEO had separated their interests, one controlling PIE Corp and the other PIE Group, hiding in a global web of shell companies, government officials, cronies and family members. I now had a new investigative technique: the Lombardi.  

The next afternoon I drove to BLICK Art Materials and bought a giant drawing pads, compasses, French curves, pencils and erasers. I started all over again. I was crawling on top of a conference room table, arranging and rearranging these secret corporate structures. What started as simple diagrams – two big circles with connected names – evolved into complex maps of corporate relationships, and I applied that approach to all manner of investigations. It led to significant discoveries of potential fraud. 

These hand-drawn networks proved invaluable, and eventually I started making them in Adobe Illustrator for investigations into companies such as China Security & Surveillance Technology (CSR: NYSE), Groupon (GRPN: NASDAQ), and Houston American Energy (HUSA: Nasdaq). Each investigation reinforced Lombardi's core insight: visual mapping reveals patterns that spreadsheets obscure.

I began to share my drawings with a group of short-selling conspiracy-minded hedge fund managers in the early 2000s. We would meet secretly and exchange discoveries about potential frauds in the market. To my great thrill, a few of them also took on the task of creating what we now all call “Lombardis”. We were guiding billions of dollars of investments, in part, based on these drawings. One hedge fund manager running a ~$500 million dollar short-only fund told me: “Every good short needs three things: a simple written thesis, a detailed unit financial model – and a Lombardi.”

To this day many of us continue to create these Lombardi’s to understand our shorts and share them when we get together. 

Money is made in the dark. In our age of offshore leaks and financial scandals, Mark Lombardi’s hand-drawn networks remind us that understanding complex systems requires human insight. His pencil revealed what journalists couldn’t explain and computers could not see.

Upcoming Events We’ll Be Following

Epistrophy In The News

That old saying: I’m not a lawyer but I play one on TV. That was me last week, going into the finer points Elon Musk’s outrageous breach of the Williams Act.

Had that interesting discussion with Connell McShane on NewsNation last week about who Musk really hurt? (Regular shareholders -- Twitter shareholders, to the tune of $150M -- by hiding his >5% stake for 21 days rather than the required 10. And the SEC is going to throw the flag when the foul is that blatant.)

My Plans This Week

I’m available all week and would love to expand on the thoughts above, though I’ll be busy now that earnings reports are back (as are our Drill Down Earnings podcasts).  Written reports are available to clients, with video summaries on YouTube and, of course our popular summaries of the summaries (yes, the concavity indicator) on Instagram and Tiktok (speaking of Tiktok, as the TikTok ban goes to full boil, I’ll be publishing more on that and I’m available to comment). 

I hope these notes are helpful to you. I’d love to discuss them further and, as always, comments, questions and ideas are appreciated.