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

Just a friendly reminder

[rsilvergun]

not to screw with wealthy, well connected investors. For those of you playing at home Enron & Bernie Madoff did just fine ripping off little old ladies of their life savings until they got greedy and big heads & went after bigger fish.

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:Double standard

[balsy2001]

He is not a private businessman. Tesla is a publicly trade company, which comes with rules. He shouldnt have done an IPO to raise money if he wanted to be a private busniessman.

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:I see...,

[known_coward_69]

Legally he isn't allowed to talk about taking the company private to anyone without a need to know about the transaction. If he said the same thing at a party instead of tweeting it, same result.

30 years ago this might have been OK, but now it's market moving info and you arrange the transaction in secret and announce it once it's done.

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.

Aww

[Greyfox]

Here I thought Musk's plan was to get investigated by the SEC, thus causing Tesla's shares to tank, which in turn would make it much less expensive to take the company private.

Re:I see...,

[bill_mcgonigle]

30 years ago this might have been OK, but now it's market moving info and you arrange the transaction in secret and announce it once it's done.

It's great how the SEC is there to keep shareholders of public companies in the dark about what's going on in the companies, especially when they all have equal access to that information. I know, I know, the institutional investors need to have priority access so the poor schmucks at retail don't stand a chance.

Elon got governmented good and hard. A shame; he can get back to productive private-sector business now, though, so there's a silver lining. But we all learned a few lessons on this one.