Elon Musk, CEO of electric car manufacturer Tesla, is the subject of a US Securities and Exchange Commission (SEC) settlement that will see him stripped of his position as chair of the company and his social media activities curtailed
Musk, who, say the SEC, made ‘false and misleading claims’ on Twitter about taking the company private, will now be subject to ‘additional controls and procedures to oversee [his] communication’.
He will also have to pay investors $20m (£15.2m) in compensation for share price volatility resulting from his comments.
The settlement will see the appointment of two new independent Tesla board members to address what is seen as Musk’s excessive power over the company.
Both Musk and Tesla have agreed to settle the charges against them without admitting or denying the SEC’s allegations. The terms of the settlement are:
- 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; and
- 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.
Stephanie Avakian, co-director of the SEC’s Enforcement Division 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’.
Steven Peikin, Co-Director of the SEC’s Enforcement Division, added: ‘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’.
In a statement, SEC chair Jay Clayton said: ‘This matter reaffirms an important principle embodied in our disclosure-based federal securities laws. Specifically, when companies and corporate insiders make statements, they must act responsibly, including endeavouring to ensure the statements are not false or misleading and do not omit information a reasonable investor would consider important in making an investment decision’.
Report by Rob Munro
