The Securities and Exchange Commission has reached a proposed settlement of securities fraud charges against Tesla’s Elon Musk that would levy $40 million in penalties and force him to resign his position as board chairman.
Tesla’s stock has experienced wild swings since the billionaire teased, via Twitter, that he was taking the company private—statements the government said were false and damaging to shareholders.
Musk, who will remain CEO, said he had a gentleman’s agreement with the Saudis that fell through. The government contends Musk had not discussed specific deal terms with potential financing partners, and knew there was uncertainty around the plan.
“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 Steven Peikin, co-director of the SEC’s Enforcement Division, in a statement. “The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.”
Under the terms of the settlement, “Musk and Tesla have agreed to settle the charges against them without admitting or denying the SEC’s allegations,” the SEC said. Here’s more from the SEC statement:
- Musk will step down as Tesla’s Chairman and be replaced by an independent Chairman. Musk will be ineligible to be re-elected Chairman for three years;
- Tesla will appoint a total of two new independent directors to its board;
- Tesla will establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications;
- Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.
“The total package of remedies and relief announced today are specifically designed to address the misconduct at issue by strengthening Tesla’s corporate governance and oversight in order to protect investors,” said Stephanie Avakian, co-director of the SEC’s Enforcement Division.
The settlement is subject to court approval, which is expected, and under it neither Tesla nor Musk admit wrongdoing.
RELATED: Elon Musk is sad and disappointed by the SEC’s fraud charges
SEC Chairman Jay Clayton said the deal was in the “best interests of our markets and our investors, including the shareholders of Tesla.”
“This matter reaffirms an important principle embodied in our disclosure-based federal securities laws,” he said. “When companies and corporate insiders make statements, they must act responsibly, including endeavoring to ensure the statements are not false or misleading and do not omit information a reasonable investor would consider important in making an investment decision.”
Recognize your brand’s excellence by applying to this year’s Brands That Matter Awards before the early-rate deadline, May 3.
