Elon Musk agrees to step down as Tesla chair­man

A tweet SEC said mis­led in­vestors draws $40M fines

Baltimore Sun Sunday - - NEWS - By Renae Merle

Tesla chief ex­ec­u­tive Elon Musk agreed on Satur­day to step down as chair­man of the elec­tric car maker he founded, an un­ex­pected res­o­lu­tion to a law­suit filed by the Se­cu­ri­ties and Ex­change Com­mis­sion 48 hours ear­lier that threat­ened to throw Tesla into un­prece­dented chaos.

The SEC sued Musk on Thurs­day for al­legedly ly­ing to in­vestors when he tweeted last month that he had “fund­ing se­cured” to take Tesla pri­vate. It sought to ban the im­pul­sive bil­lion­aire from serv­ing as chief ex­ec­u­tive of any pub­lic com­pany.

As part of the set­tle­ment, Musk will pay a $20 mil­lion fine. Tesla will sep­a­rately pay an­other $20 mil­lion, add two new in­de­pen­dent direc­tors to its board, and mon­i­tor more closely Musk’s pub­lic com­mu­ni­ca­tions — the source of many of the scan­dals that have roiled the am­bi­tious but un­prof­itable com­pany this year.

The con­di­tions of the agree­ment “are specif­i­cally de­signed to ad­dress the mis­con­duct at is­sue by strength­en­ing Tesla’s cor­po­rate gov­er­nance and over­sight in order to pro­tect in­vestors,” Stephanie Avakian, co-di­rec­tor of the SEC’s En­force­ment Di­vi­sion, said in a state­ment.

Musk and Tesla were not re­quired to ad­mit to any wrong­do­ing as part of the set­tle­ment. Tesla de­clined to com­ment on the set­tle­ment.

Re­act­ing to the law­suit ear­lier in the week, Musk said the SEC’s “un­jus­ti­fied ac­tion” left him “deeply sad­dened and dis­ap­pointed.” “In­tegrity is the most im­por­tant value in my life, and the facts will show I never com­pro­mised this in any way,” he said.

The deal an­nounced Satur­day was all the more sur­pris­ing be­cause the SEC had of­fered sim­i­lar terms two weeks ago af­ter con­duct­ing an in­ves­ti­ga­tion that was un­usu­ally quick.

Musk abruptly re­jected that ini­tial set­tle­ment ear­lier last week, peo­ple fa­mil­iar with the mat­ter said, prompt­ing the SEC to file civil suit Thurs­day af­ter­noon.

Musk, mean­while, hired sev­eral high-pow­ered at­tor­neys to pre­pare a de­fense, ap­pear­ing to gear up for the fight of his ca­reer.

But Tesla’s stock tum­bled more than 15 per­cent fol­low­ing the SEC law­suit, re­flect­ing the de­gree of risk as­so­ci­ated with Musk’s lead­er­ship of the car maker in jeop­ardy. It is un­clear why Musk, who rarely backs down from a fight, changed his mind.

It was “likely due to pres­sure from in­vestors,” said Michelle Krebs, ex­ec­u­tive an­a­lyst at Au­to­trader. Given the po­ten­tial penal­ties they faced if the case had gone to trial, “Musk and Tesla got lucky. ... Still, a reck­less tweet cost a lot of money — the $20-mil­lion tweet.”

Musk stunned global fi­nan­cial mar­kets on Aug. 7 when he is­sued tweets say­ing he had the “fund­ing se­cured” to take his au­tomaker pri­vate. Musk said the take-pri­vate deal was all but guar­an­teed, send­ing the Sil­i­con Val­ley au­tomaker’s stock soar­ing by nearly 11 per­cent.

Then, af­ter 17 days, Musk an­nounced that he would not pur­sue the deal, lead­ing the stock to plunge amid grow­ing skep­ti­cism over the com­pany’s longterm prospects.

But fed­eral se­cu­ri­ties reg­u­la­tors say his state­ments were de­cep­tive. Fol­low­ing its in­ves­ti­ga­tion, the SEC said the deal “was un­cer­tain and sub­ject to nu­mer­ous con­tin­gen­cies.”

The set­tle­ment is a big vic­tory for the SEC, which faced one of its most high­pro­file fights in years if the case had gone to trial. Even if the jury found the ev­i­dence of fraud con­vinc­ing, le­gal ex­perts said, they could have been eas­ily charmed by Musk.

Un­der the set­tle­ment, which is sub­ject to court ap­proval, Musk will re­sign as chair­man of the au­tomaker within 45 days and be barred from that po­si­tion for three years.

Step­ping down as chair­man is po­ten­tially hum­bling for Musk, 47, who is cur­rently Tesla’s chair­man, chief ex­ec­u­tive and largest share­holder, with a roughly 20 per­cent stake in the com­pany. He over­sees vir­tu­ally all of the com­pany’s de­vel­op­ment, en­gi­neer­ing and de­sign.

He also com­mands a vast au­di­ence on Twit­ter, where he has more than 22 mil­lion fol­low­ers, which Tesla agreed to mon­i­tor more closely un­der the set­tle­ment. Musk must now have the com­pany sign off on any writ­ten state­ments, in­clud­ing on Twit­ter, that could be deemed ma­te­rial.

The set­tle­ment ends one po­ten­tial night­mare for the com­pany.

Some in­vestors have wor­ried about how the elec­tric car com­pany would fare with­out Musk’s vi­sion and tenac­ity.

But other stum­bling blocks re­main. Tesla faces sev­eral share­holder law­suits tied to the Aug. 7 tweet and the Jus­tice Depart­ment is also in­ves­ti­gat­ing the is­sue.

Tesla also re­mains un­der fi­nan­cial pres­sure. It has en­dured months of pro­duc­tion prob­lems and an exodus of top ex­ec­u­tives as it faces down more than $10 bil­lion in lin­ger­ing debts.


Elon Musk stunned global fi­nan­cial mar­kets Aug. 7 when he is­sued tweets say­ing he had the “fund­ing se­cured” to take his au­tomaker pri­vate.

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