Musk to re­sign as Tesla chair­man, re­main as CEO in SEC set­tle­ment

Stabroek News Sunday - - WORLD NEWS -

WASH­ING­TON/SAN FRAN­CISCO (Reuters) - Tesla Inc and Elon Musk have agreed to pay $20 mil­lion each to fi­nan­cial reg­u­la­tors and the bil­lion­aire will step down as the com­pany’s chair­man but re­main as chief ex­ec­u­tive, un­der a set­tle­ment that caps a tu­mul­tuous two months for the car­maker.

The se­cu­ri­ties fraud agree­ment, dis­closed by the U.S. Se­cu­ri­ties and Ex­change Com­mis­sion yes­ter­day, will come as a relief to in­vestors, who had wor­ried that a lengthy le­gal fight would only fur­ther hurt the loss­mak­ing elec­tric car com­pany.

The SEC on Thurs­day charged Musk, 47, with mis­lead­ing in­vestors with tweets on Aug. 7 that said he was con­sid­er­ing tak­ing Tesla pri­vate at $420 a share and had se­cured fund­ing. The tweets had no ba­sis in fact, and the en­sur­ing mar­ket chaos hurt in­vestors, it claimed.

In­vestors and cor­po­rate gov­er­nance ex­perts said the agree­ment could strengthen Tesla, which has been bruised by Musk’s re­cent be­hav­ior, which in­cluded smok­ing mar­i­juana and wield­ing a sword on a we­b­cast, and at­tack­ing a Bri­tish res­cue diver via Twit­ter.

The set­tle­ment should place more over­sight on Musk while not tak­ing the “dev­as­tat­ing” mea­sure of forc­ing him out, said Steven Heim, a di­rec­tor at Bos­ton Com­mon As­set Man­age­ment, which owns shares in Tesla bat­tery maker Pana­sonic Corp.

Tesla must ap­point an in­de­pen­dent chair­man, two in­de­pen­dent direc­tors, and a board com­mit­tee to set con­trols over Musk’s com­mu­ni­ca­tions un­der the pro­posed agree­ment.

“The prompt res­o­lu­tion of this mat­ter on the agreed terms is in the best in­ter­ests of our mar­kets and our in­vestors, in­clud­ing the share­hold­ers of Tesla,” SEC Chair­man Jay Clay­ton said in a state­ment.

Thurs­day’s charges shaved about $7 bil­lion off high-fly­ing Tesla, knock­ing its mar­ket value to $45.2 bil­lion on Fri­day, be­low Gen­eral Mo­tors Co’s $47.5 bil­lion.

In the set­tle­ment, the agency pulled back from its de­mand that Musk, who is syn­ony­mous with the Tesla brand, be barred from run­ning Tesla, a sanc­tion that many in­vestors said would be dis­as­trous.

“I think this is the best pos­si­ble out­come for ev­ery­one in­volved” said Ivan Fein­seth of Ti­gress Fi­nan­cial Part­ners, who rates Tesla “neu­tral” and who called the SEC’s penalty “a slap on the wrist” for Musk.

“The fact that he can re­main CEO is very im­por­tant for the com­pany.”

Nei­ther Musk nor Tesla ad­mit­ted or de­nied the SEC’s find­ings as part of the set­tle­ment, which still must be ap­proved by a court. Tesla and Musk did not im­me­di­ately re­spond to re­quests for com­ment.

HUNT FOR A STRONG CHAIR? Musk had been di­rectly in­volved in al­most ev­ery de­tail of Tesla’s prod­uct de­sign and tech­nol­ogy strat­egy, and drove the com­pany’s em­ploy­ees to ex­tra­or­di­nary achieve­ments - much as an­other Sil­i­con Val­ley chief ex­ec­u­tive, Steve Jobs, did at Ap­ple Inc.

The en­trepreneur is now re­quired to step down as chair­man of Tesla within 45 days, and he is not per­mit­ted to be re-elected to the post for three years.

The SEC charged Tesla with fail­ing to have re­quired dis­clo­sure con­trols and pro­ce­dures for Musk’s tweets. The SEC said the com­pany had no way to de­ter­mine if his tweets con­tained in­for­ma­tion that must be dis­closed in cor­po­rate fil­ings, or if they con­tained com­plete and ac­cu­rate in­for­ma­tion.

Musk walked away at the last minute from an ear­lier set­tle­ment with the SEC that would have re­quired him to give up key lead­er­ship roles at the com­pany for two years and pay a nom­i­nal fine, ac­cord­ing to me­dia re­ports on Fri­day. Reuters on Fri­day re­ported that Musk could set­tle with the SEC but was ready for a court fight.

In­vestors said on Fri­day that it has been a mis­take for Musk to turn down that set­tle­ment, es­pe­cially at a time when the com­pany has been push­ing hard to meet ag­gres­sive pro­duc­tion tar­gets for its Model 3 sedan.

The set­tle­ment tasks the Tesla board, which crit­ics have ac­cused of fail­ing to rein in Musk, with the tricky chal­lenge of find­ing an in­de­pen­dent chair­man able to work closely with the some­times un­pre­dictable chief ex­ec­u­tive.

It was not im­me­di­ately clear who would be ap­pointed to the role. An­to­nio Gra­cias, the cur­rent lead in­de­pen­dent di­rec­tor and CEO of Valor Eq­uity Part­ners, has been crit­i­cized as be­ing too close to Musk and his com­pa­nies.

“The ques­tion is whether Musk’s bud­dies on the board de­cide to bring in a re­ally strong chair who will stand up to Musk,” said Erik Gor­don, a Univer­sity of Michi­gan busi­ness pro­fes­sor who fol­lows cor­po­rate gov­er­nance.

Musk has driven the com­pany to the verge of prof­itabil­ity with a costly ramp-up of pro­duc­tion of its Model 3 over the past year. Elec­tric ve­hi­cle news site Elec­trek re­ported that Tesla had pro­duced 51,000 Model 3s with a cou­ple of days left in the quar­ter, hit­ting its goal of 50,000 to 55,000.

The CEO, who has of­ten turned to Twit­ter to pro­mote Tesla and con­front crit­ics, said on Thurs­day that the SEC’s ac­tions were un­jus­ti­fied. Tesla shares jumped af­ter his Aug. 7 tweets, a blow to short-sell­ers bet­ting on the stock’s de­cline.

Elon Musk

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