Latest / Elon Musk Podcast / The private circle controlling SpaceX and government

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The private circle controlling SpaceX and government · Elon Musk Podcast

• 0:01
  Antonio Gracias is positioned to personally make 10s of billions
• 0:04
  of dollars from the initial public offering of SpaceX, and
• 0:08
  he runs an investment firm entirely in the background.
• 0:10
  Right. A payout that size usually goes
• 0:12
  to a famous founder or, you know, a public CEO.
• 0:15
  But Gracias operates as a private equity insider who just
• 0:18
  quietly holds the keys to the most valuable private corporate
• 0:22
  empire on earth. Yeah, we have a large stack of
• 0:25
  financial filings and court documents from shareholder
• 0:27
  lawsuits, plus some investigative flight logs.
• 0:31
  We are looking at how the exact same tiny circle of friends is
• 0:34
  simultaneously controlling your retirement funds, global AI
• 0:38
  infrastructure, and federal agencies.
• 0:40
  Which really leaves us with a very specific problem to solve.
• 0:44
  How does an independent board member managing public
• 0:46
  retirement funds end up holding personal financial guarantees
• 0:49
  over global AI infrastructure while simultaneously directing
• 0:53
  federal agencies? Well, the financial reality of
• 0:55
  the SpaceX initial public offering really sets the
• 0:58
  baseline here. The rocket company is targeting
• 1:00
  A valuation approaching $2 trillion.
• 1:03
  Which is just a staggering number to even process, yeah.
• 1:07
  And Valor Equity Partners, which was founded by Antonio Gracias,
• 1:11
  controls over 500 million Class A shares.
• 1:14
  That is about 7.3% of the entire company.
• 1:17
  Right. So a position that size at a $2
• 1:19
  trillion valuation means that state could be worth well over
• 1:23
  $100 billion. Exactly with standard carried
• 1:26
  interest arrangements in private equity, Gracias could personally
• 1:29
  secure a payout exceeding $20 billion just from this one
• 1:33
  event. Wait, let's pause at standard
• 1:35
  carried in just for a second. For someone listening who maybe
• 1:38
  doesn't work in private equity, how does that math actually work
• 1:41
  to get him 20 billion personally?
• 1:44
  So Gracias manages the fund. He doesn't own all the capital
• 1:47
  in it. When he makes investments for
• 1:49
  his clients, he takes a percentage of the profits his
• 1:51
  fund generates. OK.
• 1:53
  The industry standard is usually 20%.
• 1:55
  So when that 7% stake hits a $2 trillion valuation, the profit
• 2:01
  margin is so astronomical that his personal cut just naturally
• 2:04
  crosses the $20 billion mark. You know, people look at a
• 2:07
  number like $20 billion and assume he just got incredibly
• 2:11
  lucky on a late stage investment.
• 2:12
  Yeah, but he backed Elon Musk when almost no one else on Wall
• 2:17
  Street would even take his calls.
• 2:18
  I mean, he stayed incredibly loyal through some severe
• 2:21
  existential early struggles. Right.
• 2:23
  Musk's companies were quite literally hours away from total
• 2:27
  bankruptcy during an early financial crisis.
• 2:30
  He had to look at his books and weigh splitting his last
• 2:33
  remaining funds between his car company and his rocket company.
• 2:37
  And dividing the money likely meant both would fail.
• 2:40
  Yeah, he was trapped in that startup Valley of death.
• 2:43
  You know where you have a product but absolutely no cash
• 2:46
  left to scale it? Gracias made a specific
• 2:49
  observation about Musk's psychology during that crisis.
• 2:52
  He noted that under extreme pressure, while most management
• 2:55
  teams completely fray and start making bad decisions, Musk
• 2:59
  becomes hyper rational. Well.
• 3:01
  Hyper rational or just willing to gamble everything because his
• 3:04
  risk tolerance is completely detached from reality.
• 3:08
  I mean, borrowing money from the rocket company to make car
• 3:10
  payroll sounds less like hyper rationality and more like
• 3:14
  financial desperation. It was definitely desperation,
• 3:17
  but a massive government contract to resupply the space
• 3:19
  stations saved the rocket company, right?
• 3:22
  The government essentially agreed to pay them for future
• 3:24
  deliveries, which acted as collateral, and that sudden
• 3:28
  revenue allowed Musk to borrow money to save the car company
• 3:31
  literally just before payroll ran out.
• 3:34
  The real asset Gracias acquired back then wasn't just cheap
• 3:38
  shares, it was permanent trust. He proved to Musk that he
• 3:41
  wouldn't abandoned ship when the companies were burning millions
• 3:44
  of dollars a month and facing total ruin.
• 3:46
  Yeah, he bought his way into an inner circle that almost nobody
• 3:49
  ever leaves. And that early loyalty entirely
• 3:52
  shapes the current corporate reality, because that exact same
• 3:56
  trust has created a completely insulated corporate governance
• 4:00
  structure across these companies.
• 4:02
  Right right now there is a massive shareholder lawsuit
• 4:06
  concerning a $50 billion compensation package awarded to
• 4:10
  Musk. The core of that lawsuit is the
• 4:12
  allegation that the board of directors completely lacks
• 4:15
  independence. Corporate law generally requires
• 4:18
  independent directors to sign off on executive pay, so it
• 4:22
  isn't just self dealing. You really see how small this
• 4:25
  world is when you look at the details of that board.
• 4:28
  These are not professional colleagues meeting in a sterile
• 4:30
  conference. Room.
• 4:31
  No, they aren't. Board members, including Gracias
• 4:33
  and Muska's own brother, have vacationed together on a private
• 4:37
  island in the Bahamas owned by the magician David Copperfield.
• 4:41
  Right? And that island vacation
• 4:43
  actually served as a venue to casually discuss adding new
• 4:46
  members to the corporate board. They literally went to David
• 4:49
  Copperfield's private island to plan corporate governance, so
• 4:52
  the jokes really write themselves there.
• 4:54
  They are quite literally making independent oversight disappear.
• 4:57
  Yeah, the structural control is locked down tight.
• 5:00
  Even a SpaceX prepares to go public and offer shares to the
• 5:03
  market. They rely on super voting Class
• 5:05
  B shares. Which carry 10 votes each.
• 5:07
  That structure gives Musk permanent voting control over
• 5:11
  the entity. He effectively cannot be removed
• 5:15
  as CEO without his own explicit consent, no matter what the
• 5:19
  public shareholders want. Think about your own portfolio
• 5:22
  for a second. When you buy stock in these
• 5:24
  companies, you are accepting all the economic risk if the Rockets
• 5:27
  explode or the market turns. Exactly.
• 5:29
  But you are deliberately excluded from any meaningful
• 5:32
  governance rights. You have no real say in how your
• 5:35
  capital is deployed. You are entirely trusting the
• 5:38
  group of guys from the private island to make every decision.
• 5:41
  And that lack of independent site goes way beyond executive
• 5:44
  pay packages. It allows for incredibly complex
• 5:47
  financial engineering between their own interconnected
• 5:50
  companies. Right.
• 5:50
  Take the creation of X AI, the artificial intelligence venture.
• 5:53
  It was acquired by SpaceX in an all stock deal.
• 5:56
  Yeah, and to build out the massive data centers required
• 5:58
  for AI, an XAI subsidiary signed three infrastructure leasing
• 6:03
  agreements to acquire high end NVIDIA GPU's.
• 6:06
  And GPU's are the physical hardware that makes artificial
• 6:09
  intelligence function. They process the massive data
• 6:12
  sets required to train language models.
• 6:13
  Right. They are incredibly expensive
• 6:15
  and XAI just didn't have the cash on hand to buy them
• 6:18
  outright. So the entity buying those GPU's
• 6:21
  and leasing them back to the AI company is Valor Equity
• 6:24
  Partners, Antonio Gracias's firm.
• 6:26
  OK. The lease obligations for this
• 6:28
  hardware approach $20 billion. Valor has already collected
• 6:33
  hundreds of millions of dollars in payments from these leases.
• 6:37
  For an auditor, this is a nightmare scenario.
• 6:40
  The most alarming detail here is that SpaceX itself provided the
• 6:43
  payment guarantees for these leases.
• 6:46
  XAI is a new venture with unproven revenue.
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  Valor wouldn't just hand over 20 billion in hardware without a
• 6:51
  backstop. SpaceX has the valuation and
• 6:54
  cash flow to act as that backstop.
• 6:56
  The auditing firm DWC forced the rocket company to record roughly
• 7:00
  $9 billion of these leases as related party debt on its own
• 7:04
  balance sheet. Right, because the auditors
• 7:06
  viewed these transactions functionally as loans rather
• 7:09
  than standard equipment lease. Exactly.
• 7:11
  If the subsidiary can't pay, the parent company is fully on the
• 7:15
  hook. So functionally SpaceX is Co
• 7:17
  signing, XA is mortgage. Right.
• 7:20
  Imagine Co signing a massive mortgage for a startup business,
• 7:23
  but the bank collecting the interest on that loan is owned
• 7:27
  by the person sitting right next to you on your own board of
• 7:30
  directors. Right.
• 7:30
  If the new AI venture fails to generate revenue, the rocket
• 7:34
  company is left holding the bag. The board members firm continues
• 7:38
  to collect payments. It is a completely closed loop
• 7:42
  of risk and reward. That Insular network isn't just
• 7:45
  operating in the private sector anymore either.
• 7:47
  It is now directly shaping national administration.
• 7:51
  Now before we look at his move into federal administration, I
• 7:55
  must explicitly state to you listening that our show is
• 7:58
  completely impartial regarding the political events discussed.
• 8:01
  We're not taking any left wing or right wing sides.
• 8:04
  We're simply conveying the factual claims and events as
• 8:07
  reported in the source material without endorsing them.
• 8:10
  Gracias transitioned into a leadership role within the
• 8:12
  Department of Government Efficiency, initially targeting
• 8:15
  the Social Security Administration.
• 8:17
  Right. The task force planned a 12%
• 8:19
  workforce reduction. That means eliminating thousands
• 8:22
  of federal jobs. They also moved to strip civil
• 8:24
  service protections from a large portion of the remaining staff
• 8:27
  at the agency. Applying private equity
• 8:30
  workforce reduction metrics to a public service agency creates
• 8:33
  immediate operational impacts. The task force attempted to
• 8:37
  curtail the agency's telephone service in an effort to stop
• 8:40
  alleged fraud. But the data showed that only a
• 8:44
  minuscule fraction of a percent of Social Security benefits are
• 8:47
  actually lost to phone fraud. When they disrupted the phone
• 8:51
  service, call center connection rates plummeted.
• 8:54
  People couldn't get through to ask basic questions about their
• 8:57
  checks. Right.
• 8:58
  And if you cut off the phone lines, people just show up at
• 9:00
  the physical building. Yeah.
• 9:01
  This resulted in physical lines forming outside of field offices
• 9:05
  nationwide as people tried to resolve their issues in person.
• 9:08
  The task force made specific claims driving these changes.
• 9:12
  They claimed that immigrants and deceased individuals were
• 9:14
  improperly receiving benefits. Those claims were countered
• 9:18
  directly by former agency officials.
• 9:20
  They explain the mechanics behind the data.
• 9:23
  The dead people issue is actually an artifact of quirks
• 9:26
  in the agency's legacy COBOL software system.
• 9:29
  Right. COBOL is a programming language
• 9:31
  developed decades ago, and very few programmers even know how to
• 9:35
  maintain it anymore. The names remain in the database
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  due to how that specific old code processes records.
• 9:43
  Those deceased individuals are not actually receiving payments.
• 9:46
  It is a data display issue, not a cash frame.
• 9:49
  Exactly. And regarding the immigration
• 9:52
  claims, officials pointed to the Enumeration Beyond Entry
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  program. Which was a legally established
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  system designed to provide Social Security numbers to
• 10:00
  eligible immigrants for work authorization, not a mechanism
• 10:04
  for widespread fraud. Following his work at the Social
• 10:06
  Security Administration, Gracias shifted to an immigration task
• 10:10
  force. His role involved coordinating
• 10:12
  efforts across various federal agencies to accelerate
• 10:15
  deportations. How does someone whose
• 10:17
  background is in optimizing tech startups end up deciding who
• 10:20
  gets deported? He applied data management
• 10:23
  principles to federal databases. He worked on placing names on a
• 10:26
  Death Master file. And this is a specific federal
• 10:28
  list that tracks deceased individuals.
• 10:31
  When a name hits that file, it automatically triggers a cascade
• 10:34
  of automated systems across the financial sector.
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  Banks scrub their client lists against the Death Master File
• 10:40
  constantly. Right.
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  So placing a living person's name on that file effectively
• 10:44
  cuts off their access to credit cards and bank accounts
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  instantly. The algorithms just freeze
• 10:49
  everything. Pulling this all together brings
• 10:51
  us to a severe collision course regarding fiduciary duty.
• 10:56
  We have to connect his government work back to the
• 10:58
  venture capital funds he is legally obligated to be running.
• 11:01
  Yeah, the limited partners invested in Valor Equity.
• 11:04
  Partners include major public employee retirement plans and
• 11:08
  pension boards. We are talking about teachers,
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  municipal workers and state employees.
• 11:13
  Their retirement depends entirely on these returns.
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  The relationship between a general partner, like Valor and
• 11:19
  a limited partner, like a pension fund is strict.
• 11:21
  The pension board hires Valor to grow their money, right.
• 11:24
  Valor charges a management fee every year just to keep the
• 11:27
  lights on and do the research. The management of those funds
• 11:30
  requires intense, continuous focus.
• 11:33
  Yet the flight logs for Valor's private jet show a massive
• 11:37
  percentage of flights routing directly through the nation's
• 11:39
  capital. Valor's own investment and data
• 11:42
  staff have been recruited to work on the government task
• 11:44
  force alongside Gracias. Venture capital is a highly
• 11:47
  illiquid asset class. You lock your money up for a
• 11:50
  decade, you can't just withdraw it if you don't like how the
• 11:53
  film is operating. If the CEO and chief investment
• 11:56
  officer of the firm is spending his days running federal task
• 11:59
  forces and auditing government databases, who is actually
• 12:03
  managing the assets and securing exits for the companies they
• 12:06
  invested in? The performance data reflects
• 12:08
  that divided attention. While older funds managed by the
• 12:12
  firm performed quite well, several of their recent funds
• 12:16
  currently have 0 distributions to pay it in capital.
• 12:19
  Hold on, let's pause at 0 distributions to pay it in
• 12:21
  capital. In plain English, does that just
• 12:24
  mean the pension funds haven't seen a dime of actual cash
• 12:27
  return from these newer investment?
• 12:29
  Exactly, they've paid in their capital and the firm hasn't
• 12:32
  distributed any cash back to them yet.
• 12:33
  OK. If you are managing a teacher's
• 12:35
  pension fund, you have a strict legal obligation to maximize
• 12:39
  returns for those retirees. You are a fiduciary.
• 12:43
  Can you justify paying substantial management fees to a
• 12:46
  private equity firm whose leadership is focused on federal
• 12:49
  database audits rather than securing profitable exits for
• 12:53
  your investments? It becomes very difficult to
• 12:56
  defend that to a board of trustees.
• 12:58
  The boundaries between venture capital, space exploration and
• 13:01
  government administration simply no longer exist.
• 13:04
  They have merged into a single enclosed network managed by a
• 13:08
  few highly loyal individuals. You have to wonder what happens
• 13:11
  when this insular network is eventually passed down to their
• 13:14
  heirs, or how international regulators might react to a
• 13:17
  single private entity holding this much consolidated global
• 13:21
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• 13:23
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• 13:26
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• 13:29
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• 13:31
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• 13:32
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