Elon Musk is stepping down as the chairman of Tesla and will also have to pay a fine of $20 million (£15 million).
This follows a decision made by US financial markets regulator, the Securities and Exchange Commission (SEC), on September 27, to sue Musk on charges of alleged securities fraud.
The decision stems from a tweet made by the billionaire business magnate on August 7, which falsely suggested he’d secured financing to privatise Tesla for a price of $420 per share.
This is said to have led to Tesla’s stock price soaring by over six per cent the same say, causing a substantial market disruption. The subsequent securities fraud complaint led to shares dropping by over 13 per cent in after-hours trading.
47-year-old Musk will remain as the chief executive officer (CEO) of Tesla, but must now step down from his position of chairman for a three-year period.
Tesla will also have to pay a separate $20 million fine for failing to have had preventative disclosure controls and procedures in place.
Musk’s tweet which launched the investigation read:
Am considering taking Tesla private at $420 [per share]. Funding secured.
The tweet was made after Musk had met with Saudi investors who’d shown interest in Tesla. However, it quickly emerged a deal had not been guaranteed. In the weeks following the tweet, Tesla confirmed they’d be remaining a public company.
SEC chairman, Jay Clayton, made the following statement on the matter:
This past Thursday, after the completion of a thorough investigation and following dialogue with representatives of Mr. Musk and Tesla, the Commission filed an action against Mr. Musk in federal district court. I fully supported the filing of the action.
I also fully support the settlements agreed today and believe that the prompt resolution of this matter on the agreed terms, including the addition of two independent directors to the Tesla board and the other governance enhancements at Tesla, is in the best interests of our markets and our investors, including the shareholders of Tesla.
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.
In another statement, SEC’s co-director of enforcement, Stephanie Avakian, 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.
In a statement regarding the fraud charges, Musk has said:
This unjustified action by the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interests of truth, transparency and investors.
Integrity is the most important value in my life and the facts will show I never compromised this in any way.
Musk now has 45 days to step down as chairman, with a new independent chairman for Tesla set to be appointed.
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Jules studied English Literature with Creative Writing at Lancaster University before earning her masters in International Relations at Leiden University in The Netherlands (Hoi!). She then trained as a journalist through News Associates in Manchester. Jules has previously worked as a mental health blogger, copywriter and freelancer for various publications.