The Securities and Exchange Commission announced Saturday (September 30) that Elon Musk, CEO and chairman of Tesla, and the green car company have agreed to pay a total of $40 million in fines and for Musk to resign as chairman to settle securities fraud charges.
In a press release, the SEC said it charged Tesla with failing to have required disclosure controls and procedures relating to Musk’s Tesla going private tweets and Tesla stocks, a charge that Tesla has agreed to settle. “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, in the press release.
According to the SEC’s complaint against Musk, his August 7, 2018 tweet that he could take Tesla private at $420 per share — and his comments that funding for the transaction had been secure, and that the only remaining uncertainty was a shareholder vote — was not truthful. The SEC determined Musk had known the deal was uncertain and subject to several contingencies. What’s more, the SEC found Musk had not discussed specific deal terms, including price, with any potential investors. According to the SEC’s complaint, Musk’s misleading tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to significant market disruption. The SEC also slammed Tesla for having no disclosure controls or procedures in place to determine whether Musk’s tweets contained information required to be disclosed in Tesla’s SEC filings. What’s more, the SEC said it didn’t have sufficient processes in place to ensure that Musk’s tweets were accurate or complete.
As part of the settlement Musk can’t be re-elected chairman for three years, Tesla has to appoint two new independent directors to the board and 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 are each paying $20 million penalties, with the $40 million being distributed to harmed investors. “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,” 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.”
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