Elon Musk, under pressure from his lawyers and investors of Tesla, the company he co-founded, reached a deal with the US Securities and Exchange Commission on Saturday to resolve securities fraud charges. The settlement will force Musk to step aside as chairman for three years and pay a $20 million fine.
The SEC announced the deal two days after it sued Musk in federal court for misleading investors over his post on Twitter last month that he had “funding secured” for a buyout of the electric-car company at $420 a share.
The deal with the SEC will allow him to remain as chief executive, something he could have jeopardised if he had gone to battle with the agency.
It is not clear why Musk changed his mind so quickly.
People familiar with the situation, who were not authorised to speak publicly on the matter, said lawyers for Musk and the company moved to reopen the talks with the SEC on Friday. During that time, one of Tesla’s lawyers became instrumental in securing a deal with the SEC, according to a person familiar with the negotiations.
The whipsaw events of the past few days followed a series of self-inflicted wounds by Musk.
His tweet about taking his company private, along with attacks on critics on social media, raised concerns with investors about whether Musk has become too focused on criticism from so-called short-sellers who had been making bets against him and Tesla. The company has recently been struggling to meet audacious production goals for its Model 3 sedan.
Musk is widely regarded by analysts and investors as the creative engine behind Tesla, and he has helped the company become one of the most valuable American carmakers. But Tesla has lurched from crisis to crisis over the past year, and has since scrambled to contain the fallout from Musk’s tweet.
The company, whose shares have been hit hard since the SEC filed the lawsuit, did not immediately comment on the settlement. On Friday, its stock dropped almost 14 per cent.
The terms of the settlement are slightly tougher than those that two people briefed on the talks said Musk had rejected on Thursday, which called for a two-year bar on serving as chairman and a $10-million fine.
Tesla, which is also settling with the SEC, will pay a $20-million penalty. The company was not charged with any fraud.
In addition, the company will add two independent directors and take steps to monitor Musk’s communications with investors. It will also create a permanent committee of independent directors to monitor disclosures and potential conflicts of interest.
Jay Clayton, the SEC chairman, said the settlement with Musk and Tesla sent a message that “when companies and corporate insiders make statements, they must act responsibly, including endeavouring to ensure the statements are not false or misleading”.
In settling, Musk neither admitted nor denied misleading investors under the civil fraud charge, which means he cannot later say he did nothing wrong.
The settlement with the SEC faulted Tesla for failing to make sure that information important to investors was disclosed in a proper and timely manner.
Musk, according to people familiar with the negotiations, had been concerned about whether settling a civil fraud charge might affect the ability of Tesla and the other companies he runs, including SpaceX and the Boring Company, to raise money from investors in private placements and the debt markets.
But a Tesla spokesperson said the SEC had granted waivers to all of those companies so his settlement would not be held against them.
The spokesperson said Musk would be buying $20 million in Tesla stock. The amount of stock being bought by Musk matches the penalty the company has to pay under the settlement, which was filed in federal court in Manhattan.
