Elon Musk will step down as chairman of Tesla as part of a settlement with the Securities Exchanges Commission, and will also pay a $20 million fine.
In addition, Musk will be ineligible to be re-elected chairman for three years, and Tesla will pay a separate penalty of $20 million that “will be distributed to harmed investors under a court-approved process” for failing to “disclose controls or procedures in place to determine whether Musk’s tweets contained information required to be disclosed in Tesla’s SEC filings.”
The settlement ends a legal battle that began on Aug. 7 when Musk tweeted that he had enough funding for a buyout of Tesla that would take the company private for $420 a share. “Funding secured,” Musk tweeted. That tweet, along with several follow-up tweets, halted trading of Tesla shares on the Nasdaq exchange. When trading resumed, Tesla had spiked 11 percent to $380 per share.
On Thursday, the SEC filed suit against Musk, saying the Tesla chief exec sent a series of “false and misleading” tweets that “caused significant confusion in the market for Tesla’s stock and resulting harm to investors,” the SEC said in its lawsuit.
“The SEC’s complaint alleged that, in truth, Musk knew that the potential transaction was uncertain and subject to numerous contingencies,” read the SEC release Saturday announcing the settlement. “Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the possible transaction lacked an adequate basis in fact.”
Although Musk will remain CEO, he “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,” added Steven Peikin, co-director of the SEC’s Enforcement Division. “The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.”
An independent chairman will be appointed in Musk’s place, along with two new independent directors that will be added to Tesla’s board. The SEC also says that additional controls will be implemented to oversee Musk’s tweets and other communications about Tesla’s business plans. Musk will be able to be re-elected as chairman in 2021.
Pamela Chelin contributed to this report.