Elon Musk to resign as chair of Tesla board and pay US$20 million penalty
Photo Credit Kathy Hutchins / Shutterstock.com
The US Securities and Exchange Commission announced on 29 September that Elon Musk, CEO and chairman of Silicon Valley-based Tesla, Inc., had agreed to settle the securities fraud charge brought by the SEC against him the week before.
The SEC also charged Tesla with failing to have required disclosure controls and procedures relating to Musk‘s tweets, a charge that Tesla agreed to settle.
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.
According to the SEC‘s complaint against him, Musk tweeted on 7 August 7
According to the SEC‘s complaint against Tesla, despite notifying the market in 2013 that it intended to use Musk‘s Twitter account as a means of announcing material information about Tesla and encouraging investors to review Musk‘s tweets, Tesla had no disclosure controls or procedures in place to determine whether Musk‘s tweets contained information required to be disclosed in Tesla‘s SEC filings. Nor did it have sufficient processes in place to that Musk‘s tweets were accurate or complete.
Musk and Tesla have agreed to settle the charges against them without admitting or denying the SEC‘s allegations. Among other relief, the settlements require that:
- 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 US$20 million penalty. The US$40 million in penalties will be distributed to harmed investors under a court-approved process.
“The total package of remedies and relief are specifically designed to address the misconduct at issue by strengthening Tesla‘s corporate governance and oversight in order to protect investors,” said Stephanie Avakian, co-director of the SEC‘s enforcement division.
“As a result of the settlement, Elon Musk will no longer be chairman of Tesla, Tesla‘s board will adopt important reforms – including an obligation to oversee Musk‘s communications with investors – and both will pay financial penalties,” added Steven Peikin, co-director of the SEC‘s enforcement division. “The resolution is intended to prevent further market disruption and harm to Tesla‘s shareholders.”