Tesla's Elon Musk Settles With the SEC

Image source: Tesla.

Tesla (NASDAQ:TSLA) CEO Elon Musk has already opted to settle with the Securities and Exchange Commission (SEC). The settlement came just two days after the agency filed a complaint against the CEO that asserted Musk made fraudulent statements on Twitter as he considered taking the electric-car maker private in early August.
The settlement, which includes a stipulation for Musk to step down as chairman for three years before he can apply for reelection, requires a range of actions that the SEC hopes will improve oversight of the CEO's communications.

Settling with the SEC: Here are the details

Musk's settlement follows his Aug. 7 tweet, when he shocked investors with news that he was considering taking the company private. But two particularly questionable words in the fateful tweet sparked concern from investors: "Funding secured," Musk wrote. Many viewed the tweet (and a series of tweets to follow on the same day) as misleading.
Sure enough, the SEC filed a suit against Musk, claiming he had made "a series of false and misleading statements." According to the SEC's allegations, "Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source." 
Tesla stock plummeted on news of the SEC's claim against Musk. Shares fell nearly 14% by the end of the trading day on Friday.

The SEC said that its resolution with Musk, announced on Saturday, intends "to prevent further market disruption and harm to Tesla's shareholders."
Here's a look at the resolution, according to the SEC's press release about the settlement over the weekend:
  • Most important, the resolution allows Musk to settle "without admitting or denying the SEC's allegations."
  • Musk has to step down as chairman within 45 days and will be ineligible to be reelected for three years. He can remain as CEO.
  • Tesla's new chairman must be independent.
  • The company must appoint two new independent directors to its board. Independent directors will be people who are not officers of the company and don't have a material relationship with Tesla.
  • The company must "establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk's communications."
  • Both Tesla and Musk will pay $20 million in fines, which "will be distributed to harmed investors under a court-approved process."

Reducing noise

The settlement may ultimately represent a sigh of relief for investors, as the SEC's initial claim suggested much bigger penalties for Musk, including a bar that would prevent the executive from serving as a public officer or director of any publicly traded company ever again. Given how integral Musk has been to the company's success, investors are likely grateful that he can remain CEO and eventually be reelected as chairman.
 even Musk has admitted he needs to calm down on Twitter. Improved oversight over the CEO's communication might benefit shareholders, ultimately reducing noise and enabling the company to focus more on execution and less on Musk's spontaneous tweets.
Execution, of course, is vital as Tesla is ramping up production of its highest-volume vehicle yet, the Model 3.

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