The Securities and Exchange Commission on Saturday stipulated that Tesla Inc. and Elon Musk settle up fines to the tune of $20 million each. As part of the settlement, Musk will also be stepping down as chairman of the American manufacturer of electric cars.
He will, however, retain his position as CEO of Tesla. The settlement is the result of two months of tumultuous highs and lows the company faced originating from Musk’s controversial August 7 tweet. The Securities and Exchange Commission alleged in a lawsuit last Thursday that the tweets about financing for Tesla’s plan to go private which Musk abandoned just weeks later had no basis in fact. It also said that the market chaos that followed had hurt investors.
Elon Musk is now required to vacate his position as chairman of Tesla within 45 days. He also can’t contest re-elections for the position for another three years. Tesla will also have to appoint two new independent directors to its board. SEC had originally demanded that Musk is barred from taking any crucial decisions for Tesla altogether. The commission had to pull back the demand after many investors said such a decision would be disastrous for the unprofitable company.
“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,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in a statement. “The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.”
The SEC charges levied against Tesla had a huge fallout last week. The company’s market value fell sharply by about $7 billion to close at $45.2 billion in New York Trading on Friday. It now stands below General Motors Co.’s market value of $47.5 billion. The SEC charged Tesla with failing to have required disclosure controls and procedures for Musk’s tweets. According to the commission, the company had no way to determine if his tweets contained information that must be disclosed in corporate filings, or if they contained accurate information.
Musk had walked away from an earlier settlement the SEC had proposed requiring him to give up key leadership roles at Tesla for two years and pay a nominal fine, saying the actions against him were unjustified. The new settlement now asks Tesla to look for an independent chairman, a tricky challenge given that the person will have to work closely with the unpredictable chief executive.