Elon Musk Settles SEC Fraud Charges, Must Step Down As Tesla's Chairman

Soon after it was reported that the Securities and Exchange Commission (SEC) sued Elon Musk for making false statements related to his abandoned efforts to take Tesla private, the SEC announced today that Elon Musk has agreed to settle the fraud charges. In a press release, the SEC says "Musk and Tesla have agreed to settle the charges against them without admitting or denying the SEC's allegations." The settlements, which are subject to court approval, require the following:

- Musk will step down as Tesla's Chairman and be replaced by an independent Chairman. Musk will be ineligible to be re-elected Chairman for three years;
- Tesla will appoint a total of two new independent directors to its board;
- Tesla will establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk's communications;
- Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.

Slashdot reader Rei writes: In the wake of initially refusing a settlement offer over the wording, Elon Musk has now settled today with the SEC, concerning his tweets about taking Tesla private. As per the settlement agreement, there is 1) no admission of wrongdoing; 2) Musk and Tesla will each pay a $20 million fine; 3) Musk will remain as CEO of Tesla; 4) Musk will be prohibited from serving as chairman of Tesla for three years; and 5) Tesla must appoint two new members to its board of directors. An additional clause seems apropos: Musk must "comply with all mandatory procedures implemented by Tesla, Inc [...] regarding (i) the oversight of communications relating to the Company made in any format, including, but not limited to, posts on social media..."

Comments

Re:Musk is still CEO

[Anonymous Coward]

The SEC didn't back down. Elon Musk changed his mind and decided to take the deal.

In the original deal, Musk wouldn't have had to give up the CEO position either. He just had to give up the chairman position for 2 years (now 3 years), pay a fine, and appoint 2 new independent directors.

From Tesla's Musk pulled the plug on a settlement with the SEC at the last minute:

Tesla and the Securities and Exchange Commission were close to a no-guilt settlement but Elon Musk pulled out at the last minute, sources told CNBC.

Under the deal, Musk and Tesla would have had to pay a nominal fine, and the CEO would not have had to admit any guilt, the sources said. However, the settlement would have barred Musk as chairman for two years and would require Tesla to appoint two new independent directors, CNBC's David Faber, citing sources.

Re:Chairman vs CEO

[MightyMartian]

The Chairman is a position on the board of directors. The board of directors represents the shareholders, and in general does not manage the day to day affairs of the business; but rather hires a Chief Executive Officer (who in many organizations is the only actual direct employee of the board of directors) as the most senior manager. The board oversees long-term strategies, approves annual budgets, and in most private companies is elected by shareholders who hold common shares (one vote per common share). If Musk is no longer on the board of directors, even if he remains CEO, it is conceivable that the board could fire him, or at least intervene. He will be subordinate to the board, which is why I think the SEC is also requiring the number of directors be bumped up to dilute any control he may have over the board.

Re:Chairman vs CEO

[AlanObject]

I am pretty sure the rules are the same in your country because this much is pretty global. Nominally the corporate structure is as follows:

Stockholders own the company. There can be different classes as stock but as a whole the majority of stockholders can vote for the corporation to do anything legal.

The stockholders appoint a Board of Directors and the Board Chairman. They can be removed by the stockholders so they are accountable to the stockholders. Directors are usually stockholders themselves but not necessarily or so.

The Board of Directors decide who the CEO and usually who all the major officers of the corporation are, such as the #2 guy and the CFO and corporate counsel. The bylaws (as approved by stockholders) will generally also have the sole power for certain actions like selling dock, taking out loans, etc. Often large lenders want to see Board approval before granting credit. However the CEO reports to the Board.

The CEO is in charge of everything else and if he/she doesn't do what the board likes the board removes him/her and gets someone else.

Re:Chairman vs CEO

[Local ID10T]

Just to clarify:

Musk still has a seat on the board of directors. He gives up only his position as chairman of the board of directors.

The appointment of the 2 additional directors will serve to dilute his control over the company, as it is the board which sets out the directives the CEO/president (aka Musk) must follow.

Re:Musk is still CEO

[Rei]

Ed, correction: the original version purportedly referred to "misleading investors", not "fraud", and that was the language that Musk objected to..

That statute contains language about misleading investors. Mr. Musk’s lawyers wanted the commission to change its claim to say he was merely negligent in his statement, according to a person familiar with the details of the negotiations.

Re: Musk is still CEO

[Rei]

Not directors. Shareholders voted down the resolution to add more directors. 85% of shares voted against the proposal.