Elon Musk has been forced to step down as the chairman of Tesla’s board of directors as both he and the company face massive fines, the Securities and Exchange Commission announced Saturday.
In early August, Musk tweeted that he had corralled funding to take Tesla private. The SEC, which opened an investigation, said that was misleading, because Musk knew at the time the deal was uncertain.
The deal reached Saturday allows Musk to stay on as Tesla’s CEO, according to court documents. However, Musk has 45 days to give up his post as board chairman. Tesla needs to appoint two new directors and make other management changes, the agreement with the SEC said.
Musk is allowed to remain a board member, CNN reported.
Although neither Musk nor Tesla admit or deny wrongdoing alleged by the SEC, each gets hit with a $20 million fine for a total of $40 million.
“This matter reaffirms an important principle embodied in our disclosure-based federal securities laws,” SEC chairman Jay Clayton said in a statement, CNBC reported.
“Specifically, when companies and corporate insiders make statements, they must act responsibly, including endeavoring 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,” Clayton said.
It all began with a tweet.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
“Musk tweeted on Aug. 7, 2018 that he could take Tesla private at $420 per share — a substantial premium to its trading price at the time — that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote,” the SEC said Saturday in a release.
However, “in truth, Musk knew that the potential transaction was uncertain and subject to numerous contingencies. 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 SEC added.
The SEC said the $40 million in fines will be given to investors who were harmed by what took place.
The SEC originally said it wanted to ban Musk from any role with any publicly traded company.
Musk has always denied any wrongdoing
“I have always taken action in the best interests of truth, transparency and investors,” he has said. “Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
Jay Dubow, formerly of the SEC and now a partner at Pepper Hamilton, said letting Musk remain in an active leadership role with the company is not normally how the SEC handles such matters.
It’s surprising considering “the conduct at issue, if (the SEC) really thought it was egregious,” Dubow said. “The CEO is certainly more involved than the chairman in day-to-day operations.”
Dubow said that fear of harming Tesla investors could have influenced the SEC in leaving Musk in such a major role with the company.
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