Elon Musk settles with SEC, to pay US$20M

By @chelean on
FILE PHOTO: Tesla Chief Executive Elon Musk stands on the podium as he attends a forum on startups in Hong Kong, China January 26, 2016.
FILE PHOTO: Tesla Chief Executive Elon Musk stands on the podium as he attends a forum on startups in Hong Kong, China January 26, 2016. Reuters/Bobby Yip/File Photo

Elon Musk has settled with the Securities and Exchange Commission in the US. He agreed to step down as chairman of Tesla and pay a US$20 million (AU$27.73 million) fine on Saturday.

He will be allowed to stay as the company’s CEO but must leave his role as chairman of the board within 45 days. According to the settlement, he is permitted to remain as member of the board, but he should not seek re-election for three years. He accepted the deal “without admitting or denying the allegations of the complaint.”

Tesla has also agreed to pay US$20 million for failing to adequately police Musk’s tweet, which was the basis of the SEC’s lawsuit. It will add two new independent directors to its board, as well as a board committee to oversee Musk’s communications.

Musk was sued by SEC last week for allegedly misleading investors. The basis was a tweet he wrote on Aug. 7, wherein he said he would take Tesla private, “funding secured.” The tweet caused the company’s stock to soar. However, SEC said he had not secured the funding.

“Am considering taking Tesla private at $420. Funding secured,” he wrote.

SEC maintained that Musk made a series of “materially false and misleading statements” on Twitter a few hours later after sending the first tweet. The agency said that he knew he had never discussed going private with any potential funding source and had not confirmed support of the company’s investors for the potential transaction. Tesla’s stock price increased by more than 6 percent following the tweet.

SEC also claimed in its filing that Tesla had previously described Musk’s Twitter account as “strong channel of marketing” for the company, with the billionaire acting as a “spokesman” for the company.

CNBC reported that SEC only filed the lawsuit against Musk after it backed out of a deal to settle the allegations of fraud. Apparently, by settling, Musk would be “failing to be true to himself.” The previous deal would see Musk and Tesla paying a nominal fine, and Musk would also not have to admit guilt. It would bar him from being chairman for two years and would require Tesla to appoint two new independent directors.