SEC Deal Involves $40 Million in Fines to Compensate Investors
Tesla CEO Elon Musk chose to settle the Securities and Exchange Commission’s lawsuit against him by resigning as Chairman of the company board and paying a $20 million fine following a tweet that he would take Tesla private for $420 per share. Tesla is responsible for paying an additional $20 million fine.
According to Gizmodo.com, the fraud charge punishes Musk for making “false and misleading” statements in light of the lack of any assurance of a private deal with the Saudi sovereign wealth fund that he said had proposed the buyout. Musk had initially claimed his innocence.
“This is a massive humbling for Musk, who in recent months has seen a number of bizarre and mostly self-inflicted controversies over everything from a defamation lawsuit brought by a Thai cave rescuer he baselessly accused of pedophilia to allegations of drug use and a New York Times interview in which he was described as alternating “between laughter and tears.”
The New York Times reported that the deal represents a much better outcome than Musk should have expected. Musk would only be required to step down as chairman within 45 days and be barred from the post for two years. Two more board members would be added, in addition to the fines. Musk initially rejected the deal the day it was to be announced, but returned to the table two days later under pressure. He had objected to the requirement that he be forbidden from saying he’d done nothing wrong.
A Wired magazine story also quoted a securities law professor who commented on the favorable terms of the SEC deal.
“Frankly, I view this as somewhat favorable to Musk,” Stephen Diamond, a professor of securities law and corporate governance at the Santa Clara University School of Law, told Wired magazine. “He remains CEO, he’s still the dominant stockholder in the company, and he still remains in place on the board.” (Musk owns about 22 percent of Tesla shares.)
Tesla will also have to deal with a series of class-action lawsuits filed by investors who say they lost money due to market volatility. The $40 million in fines will be used to pay off investors, but some are expected to persist with demands for more money.
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