Elon Musk the CEO of Tesla has agreed to step down as the chairman of the electric car company. He has also agreed to pay $20 million to settle a dispute with the U.S. Securities and Exchange Commission (SEC). The details of Elon’s decision to step down was announced by SEC in a statement on September.29.2018.
The settlement was regarding a securities fraud charge brought against Musk by the SEC on Sept.27.2018. This all stemmed from Elon Musk’s tweet on August.7.2018 that he was considering taking Tesla private at $420 per share. Even though there were no factual evidence about Musk taking Tesla private it ended up causing market chaos which resulted in investors being hurt. As a result of the tweet, Tesla’s stock price jumped to over six per cent on August.7.2018 and lead to significant market disruption.
Moreover, Tesla was charged by the SEC due to the car company failing to have obtained disclosure controls and procedures for Musk’s tweets. The SEC stated that Tesla had no way of finding out if Musk’s tweets contained accurate and complete information which would have needed to be disclosed in corporate filings. The idea for taking Tesla private was abandoned by Musk weeks after proposing it.
Both Musk and Tesla have agreed to settle the charges against them, however, neither have admitted nor denied the SEC’s allegations. Tesla will still retain Musk as the company’s CEO.
The details of the settlement are as follows, Musk must step down as of Tesla’s chairman within 45 days, and he will be ineligible to become chairman again for three years. There are imposed penalties of $20 million each which Musk and Tesla must pay for a total of $40 million total in penalties. The $40 million will be distributed to the harmed investors as advised by the SEC.
Another key aspect of the settlement is that Tesla must appoint an independent chairman, two independent directors and a board committee which would set controls over Musk’s communications under the new agreement.