Elon Musk will step down as chairman of Tesla Inc (NASDAQ:TSLA) and pay a USD-20-million (EUR 17.2m) penalty under a settlement with the US Securities and Exchange Commission (SEC), which recently charged him with securities fraud.
The CEO of the electric vehicle (EV) and clean energy firm will be ineligible to be re-elected chairman for three years, the SEC said on Friday.
The commission also announced that Tesla has agreed to settle a charge concerning its failure to put in place disclosure controls and procedures relating to Musk’s tweets.
In addition to Musk’s three-year ban from the chairman position and the financial penalty, the measures to be taken as part of the settlements include the appointment of two new independent directors to the board, the introduction of additional controls and procedures to oversee Musk’s communications, and another USD-20-million penalty payment by the company. The total of USD 40 million in penalties will be distributed to harmed investors under a court-approved process, the SEC said Friday.
The settlements, in which Tesla and Musk neither admit nor deny the SEC’s allegations, are subject to court approval.
“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,” Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, said on Friday. Her colleague Steven Peikin added that the resolution is intended to prevent further market disruption and harm to shareholders of Tesla.
On August 7, Tesla’s CEO and chairman tweeted "Am considering taking Tesla private at $420. Funding secured." Then he continued with "Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote."
At the end of August, though, Musk said in a blog post that, after discussing the matter with current investors, he had determined that the better path for Tesla is to remain public.
According to the SEC’s complaint, Musk was well aware at the time that the transaction was uncertain and that numerous contingencies existed. In its complaint, the SEC states that Musk’s misleading tweets caused the stock price of Tesla to surge by more than 6% that day and resulted in significant market disruption.
“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,” the commission said.
Back in 2013, Tesla notified the market that it intended to use Musk’s Twitter account as a means of announcing material information about the company. Still, it did not establish disclosure controls or procedures to determine whether the tweets by its head contained information required to be disclosed in Tesla’s SEC filings, and whether they were accurate or complete, the SEC says.
(USD 1 = EUR 0.86)
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