Elon Musk will step down as chair of Tesla Inc. for at least three years, pay a US$20-million civic penalty, but retain his position as the company’s CEO under a deal with the U.S. Securities and Exchange Commission (SEC) that is still subject to court approval.
“As a result of the settlement, Elon Musk will no longer be Chairman of Tesla, Tesla’s board will adopt important reforms—including an obligation to oversee Musk’s communications with investors—and both will pay financial penalties,” said the co-director of the SEC’s enforcement division, Steven Peikin. On top of Musk’s fine, Tesla will pay an additional $20 million.
The Teslarati blog reports that the SEC deal includes “the appointment of two new independent directors, as well as the creation of a new committee tasked to ‘place additional controls and procedures to oversee Musk’s communications,’ particularly on social media platforms such as Twitter.”
“The violations stem from Musk’s tweet last month stating that he planned to take the company private at $420 per share, claiming that he had secured funding for such a deal,” The Hill reports. “According to reports, Musk never had obtained a specific financing deal with his partners and had rounded up the trading price of Tesla’s stock to reference ‘420,’ a joke about marijuana.”
Tesla shares fell 12% after news of the SEC lawsuit broke Friday.
“Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions,” the SEC stated.
Teslarati suggests that a Saudi investor’s interest in the company was sufficient to make Musk’s tweet technically legal. “While Elon Musk’s ‘funding secured’ tweet last August was not smart from a business perspective, the SEC would have a very difficult time proving that the CEO actually committed fraud,” writes blogger Simon Alvarez, citing former SEC senior counsel Thomas Gorman.
Through that lens, he says, Musk’s decision not to fight the SEC lawsuit amounts to taking one for the team, agreeing “to take a personal blow instead of compromising Tesla’s progress,” Alvarez writes. “Ultimately, Elon Musk appears to have put Tesla before his own wishes to fight back,” providing “a clear path for Tesla to attain a record-breaking third quarter without any unnecessary drama.”