Elon Musk ousted as Tesla chairman, asked to pay $20 m fine
01 October 2018
Elon Musk, chairman and chief executive of Tesla, has agreed to step down as chairman of the electric car maker he founded, to resolve a lawsuit filed by the Securities and Exchange Commission (SEC) against Musk who lied to investors and misled them and left the company in chaos.
The SEC sued Musk on Thursday, alleging that he tweeted "false and misleading statements" in August about taking the company private.
The impulsive billionaire Musk had tweeted last month that he had "funding secured" to take Tesla private.
As part of the settlement, Musk will neither admit nor deny the allegations, and he will resign as Tesla chairman within 45 days. Musk and Tesla will also each pay a $20 million fine.
It will require Musk to resign as chairman of the company or any public company for at least three years and pay a $20 million fine, the SEC announced on Saturday.
Tesla will add two new independent directors to its board, and monitor more closely Musk's public communications - the source of many of the scandals that have roiled the ambitious but unprofitable company this year.
The conditions of the agreement "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 in a statement.
On 7 August Musk made a surprise announcement that he was thinking of taking Tesla private. Musk told his more than 22 million Twitter followers that he might take Tesla private at $420 per share, with “funding secured”.
But his team of executives had no knowledge of his plans. Twelve minutes later, Tesla’s head of investor relations told investors to ask Musk’s chief of staff whether Musk’s announcement was “legit”, the SEC pointed out.
On 24 August, after news of the SEC probe had become known, Musk again Tweeted that investor resistance forced Tesla to remain public.
Musk had not discussed the $420 figure with any potential funding source before he broached the subject to Tesla’s board in a 2 August email, the SEC said.
SEC said Musk “knew or was reckless in not knowing” that his tweets about taking Tesla private at $420 a share were false and misleading, given that he had never discussed such a transaction with any funding source.
The SEC said Musk met for less than an hour with three representatives of Public Investment Fund, at the company’s Fremont, California, plant on 31 July during which the lead representative for the Saudi Arabian sovereign wealth fund expressed interest in taking Tesla private if the terms were “reasonable,” according to the lawsuit.
Musk acknowledged the meeting lacked discussion of “even the most fundamental terms” of the deal and nothing was set in concrete terms.
The SEC said its investigation into Tesla is ongoing.
The SEC lawsuit comes as Tesla has been struggling to deliver its new Model 3 sedan, which is key to the company’s future profitability, after a long series of production issues and delays.
The move to bar Musk as an officer of any public company was a rare move for the SEC against the CEO of such a well-known firm.
While a trial would have been risky for both sides, the settlement is subject to court approval.