Billionaire Elon Musk has agreed to step down as the chairman of Tesla Motors and pay $20 million as part of a settlement offered by Securities and Exchange Commission (SEC). Musk caved in 48 hours after the US markets watchdog filed a lawsuit against him, seeking to oust the multibillionaire innovator from the mobility company he founded over allegations of securities fraud. He now will have to pay $20 million and resign from the post of Tesla chairman within 45 days. He will be banned from the office for at least three years.
Under the terms offered by the SEC, Tesla will pay another $20 million to the commission, add two independent directors to its board and keep a close watch on Musk's public communications. The company will have to sign off any written statements by its founder, even his tweets, if they could be deemed material. Musk and Tesla, however, need not admit to any wrongdoing.
The terms of the settlement address the misconduct at issue by strengthening Tesla's corporate governance and oversight in order to protect investors, a Washington Post report quoted SEC's Enforcement Division co-director Stephanie Avakian as saying. Musk will remain the CEO of Tesla, allowing him to shape the company and forward his innovation in electric mobility.
Reports suggest that Tesla's attorneys Bradley Bondi of Cahill Gordon & Reindel, and Musk's attorney, Steven Farina of Williams & Connolly held several late night calls with the SEC to resolve the matter, but in vain. The $40 million from the agreement will be distributed to harmed investors, according to the SEC.
This chain of event began with a tweet by Musk back on August 7 where he talked about his plans to take Tesla private at $420, a substantial premium over the stock price at that time, and has the required "funding secured", without offering any financing details. The tweet sent Tesla share soaring by almost 11 per cent, which came crashing down after Musk backed out from the deal 17 days later.
Last week, the SEC slapped Musk with fraud charges for making false and misleading statement after determining that he never finalised any deal to back his plans to take Tesla private. The Commission filed a lawsuit against Musk on Thursday, followed by a settlement offer which allowed him to stay on board Tesla as the company's chief executive in lieu of a fine. Tesla stock plunged almost 14 per cent following the lawsuit, with investors spooked over it will have on the company.
Musk initially seemed to be prepping for an intense legal battle after rejecting SEC's settlement offer at the eleventh hour, reportedly because he did not have a blemish on his record. He however gave in and agreed to pay the $20 million fine, which most likely will not hurt his valuation at $20.1 billion. It surely is better than the chaos that the lawsuit would have plunged Tesla in, which already is battling production problems surrounding the Tesla 3 electric sedan amidst exit of several top executives and outstanding debts to the tune of $10 billion.