By Elton Gomes
Tesla and its CEO Elon Musk have agreed to pay $40 million in total and make several concessions to settle a government lawsuit, which alleged that Musk had duped investors with misleading statements about potentially taking Tesla private.
Musk’s settlement with the Securities and Exchange Commission (SEC) allows him to remain CEO of his company, but he will have to step down as chairman of Tesla’s board for at least three years.
Both Musk and Tesla will have to separately pay $20 million fines that will “be distributed to harmed investors under a court-approved process,” according to the SEC, Verge reported.
The SEC’s enforcement brings to an end a saga that began in early August, wherein Musk announced on Twitter that he plans to take Tesla private. The SEC’s lawsuit alleged that by doing so, Musk issued “false and misleading” statements, and failed to adequately inform regulators of material company events. Under the deal’s terms, Musk and Tesla neither admit nor deny any wrongdoing alleged by regulators.
“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,” Stephanie Avakian, co-director of the SEC’s enforcement division, said in a statement, as per the Verge report.
Musk to step down from chairman’s role
The settlement with the SEC will force Musk to step down as chairman for a period of three years. The deal, however, will allow him to remain as CEO. Tesla will also have to appoint two new independent directors to its board. As per the deal, the electric car company will also have to hire a lawyer to monitor Musk’s communications, including his tweets.
Musk tweeted about taking Tesla private
In August, Musk caused ripples across Wall Street after he tweeted that he wants to take Tesla private at a price of $420 per share.
Musk then said he hopes that “all current investors remain with Tesla even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity’s SpaceX investment,” TechCrunch reported.
Musk’s original tweet came shortly after the media reported that a Saudi Arabian sovereign wealth fund purchased a $2 billion stake in Tesla. Several media reports estimated that Saudi Arabia is extremely close to sealing a deal with Musk.
It was unclear whether Musk, in tweeting about taking Tesla private, had not adhered to any SEC guidelines. However, the SEC does allow some companies to announce certain decisions under specific circumstances on social media.
SEC sues Musk
A month later, the SEC sued Musk for securities fraud after his failed attempt to take the company private. Through the complaint, which was filed in federal court in the Southern District of New York, the SEC sought to ban Musk from being able to hold officer or director positions at publicly-traded companies, as well as any other damages the court feels are appropriate.
“In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,” prosecutors wrote in the complaint, Verge reported.
Specifically, they said that Musk’s “funding secured” tweet was “false and misleading.” Prosecutors also said that Musk’s subsequent statements were false and misleading.
Tesla and its board backed Musk and said that they were “fully confident in Elon, his integrity, and his leadership of the company.” The company and the board said in a statement, “Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees,” Bloomberg reported.
Musk called the lawsuit “unjustified” and said that it left him “deeply saddened and disappointed.”
“I have always taken action in the best interests of truth, transparency and investors,” he said in a statement, as per the Bloomberg report. “Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
What does this mean for Tesla and Musk
Analysts and investors have largely hailed Musk as the creative genius behind Tesla, and he has helped the company become one of the most valuable American carmakers. However, Tesla has recently found itself in a spot, after it encountered several production problems in its Model 3 and difficulties in its solar roof business. Since then the carmaker has been struggling to stay afloat after Musk’s tweet.
The flamboyant Musk has always been in the news. From dating pop stars to the entire “pedo guy” drama, Musk is rarely far from controversy. The SEC lawsuit might have some positive ramifications as it helped Musk stay out of an investigation, thus containing the damage done to Tesla’s reputation.
Under the deal, the addition of two new independent directors could give Musk some time to rest and could infuse Tesla with some much-needed stability.
Elton Gomes is a staff writer at Qrius
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