Elon Musk will step down as chairman of car manufacturer Tesla and will pay a $20m fine in a settlement with the US Securities and Exchange Commission (SEC), according to a statement released on September 30.
The SEC announced on September 28 that it was suing Musk for securities fraud in relation to a tweet he posted on August 7, claiming he would be taking Tesla private at $420 a share. The tweet was later revealed to be entirely baseless.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
Under the terms of the settlement, Musk has 45 days to step down as chair of Tesla, a position he is forbidden to hold for the next three years. However, he will remain in his post as CEO of the company.
Musk has 45 days to step down as chair of Tesla, a position he is forbidden to hold for the next three years
Tesla will also pay a $20m fine, which, along with Musk’s personal $20m fee, will create a fund to reimburse investors who were financially disadvantaged by the false claims.
Tesla shares have lost 30 percent of their value since the tweet was posted, falling from $379.57 to $264.77 when markets closed on September 28.
SEC chairman Jay Clayton said in a statement: “This matter reaffirms an important principle embodied in our disclosure-based federal securities laws.
“Specifically, when companies and corporate insiders make statements, they must act responsibly, including endeavouring 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.”
Two new independent directors will be appointed to preside over Tesla’s board. As chairman, CEO and majority shareholder at Tesla, Musk wields a great deal of power within the firm. His resignation as chairman allows for an important separation of the CEO and directorial roles, which will serve to limit Musk’s individual authority within Tesla.
In an effort to prevent any future incidents of fraudulent claims, Musk will be obliged to adhere to a strengthened communications policy set by company board members. This will dictate that a board member must be present in meetings with investors and will prevent Musk from sharing any financial information about Tesla on Twitter without prior consent from the board.
Musk has emerged from the investigation relatively unscathed as he is able to continue in his role as CEO. Under the original terms of the settlement, the SEC sought to ban him from participating on the board of directors of any publicly traded company.
Moreover, the $20m fine he has been handed will not make much of a dent in his $20bn personal fortune, which currently makes him the 40th richest person in the world, according to Bloomberg’s Billionaire Index. The financial implications of this case will be far more heavily felt by Tesla’s investors and may inspire some to reconsider their investment in a company with a volatile CEO at the helm.