Elon Musk has reached a deal over fraud charges that will see him step down as chairman of the Tesla Inc board and pay a US$20 million fine, but stay on as chief executive officer, the US Securities and Exchange Commission (SEC) said on Saturday.
The agreement eases pressure on Musk, who faced potentially being barred from serving as an officer or board member of a publicly traded company as a result of the charges, which stemmed from a tweet he made about taking the firm private.
“The settlements, which are subject to court approval, will result in comprehensive corporate governance and other reforms at Tesla — including Musk’s removal as chairman of the Tesla board — and the payment by Musk and Tesla of financial penalties” of US$20 million each, the commission said in a statement.
The commission had charged Musk with securities fraud, alleging that he misled investors when he tweeted on Aug. 7 that he had “funding secured” to privatize the electric automaker at US$420 per share.
That caused a brief spike in Tesla’s share price, leading so-called short-sellers, who for years have been betting on the stock crashing, to lose millions.
The commission said Musk’s statements on Twitter were “false and misleading” and that he had never discussed the plans with company officials or potential funders.
Musk said he later decided against the plan.
“When companies and corporate insiders make statements, they must act responsibly,” SEC Chairman Jay Clayton said.
Under the agreement — which Clayton said was “in the best interests of our markets and our investors, including the shareholders of Tesla” — Musk would be ineligible to serve as chairman of the board for three years and would be replaced by an “independent chairman,” the commission said.
Two “independent directors” would also be appointed by Tesla, and the company is to set up a new committee of independent directors and “put in place additional controls and procedures to oversee Musk’s communications,” it said.
The US$40 million in financial penalties “will be distributed to harmed investors under a court-approved process,” it said.
“The total package of remedies and relief announced today are specifically designed to address the misconduct at issue by strengthening Tesla’s corporate governance and oversight in order to protect investors,” SEC codirector of enforcement Stephanie Avakian said.
“The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders,” SEC codirector of enforcement Steven Peikin said.
Tesla’s shares plummeted about 14 percent on Friday over concerns about the company’s future after the announcement of the fraud charges against Musk.
The company is seeking to ramp up production of its Model 3, the mass-market vehicle seen as a key to the automaker’s future, but now faces other logistical issues, Musk said.
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