Elon Musk Settles With SEC, To Resign As Chairman And Pay $40 Mln In Penalty

(RTTNews) - Elon Musk, Tesla Inc.'s (TSLA) founder and CEO, has reached a settlement with the U.S. Securities and Exchange Commission related to the "taking private" claim. The billionaire entrepreneur will have step down as the luxury electric car maker's chairman and pay $40 million in penalties.

The SEC on Thursday had charged Musk with fraud for a series of false and misleading tweets about a potential transaction to take Tesla private.

Under the settlement agreement, Musk will remain as Tesla CEO but has to step down as chairman for three years. Musk and Tesla will also have to pay a $20 million in penalties. Tesla will also have to appoint a total of two new independent directors to its board.

"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," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division.

The SEC's Chairman Jay Clayton said he fully supported the settlement agreement and believe that the resolution of this matter is in the best interests of markets and 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 endeavoring 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," Clayton said.

Musk, on August 7, tweeted that he could take Tesla private at $420 per share and that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote.

However, SEC alleged that Musk knew that the potential transaction was uncertain and subject to numerous contingencies. Musk had also not discussed specific deal terms, including price, with any potential financing partners and his statements about the possible transaction lacked an adequate basis.

Musk will now also have to comply with company communications procedures when tweeting about the firm. He now has 45 days to leave his role as chairman of Tesla.