Tesla’s Elon Musk settles with SEC, paying $20 million fine and resigning as board chair
Tesla’s Elon Musk settles with SEC, paying $20 million fine and resigning as board chair
By Michael LiedtkeThe Associated Press
Sat., Sept. 29, 2018
SAN
FRANCISCO—Tesla and its CEO Elon Musk have agreed to pay a total of $40
million (U.S.) and make a series of concessions to settle a government
lawsuit alleging Musk duped investors with misleading statements about a
proposed buyout of the company.
The settlement with the
Securities and Exchange Commission allows Musk to remain CEO of the
electric car company but requires him to relinquish his role as chairman
for at least three years.
Under
the settlement, Elon Musk will resign as chairman of the automaker
within 45 days and be barred from that position for three years. (Kiichiro Sato / Associated Press)
Tesla
must hire an independent chairman to oversee the company, something
that should please a number of shareholders who have criticized Tesla’s
board for being too beholden to Musk.
The deal was announced Saturday, just two days after SEC filed its case seeking to oust Musk as CEO.
Musk,
who has an estimated $20 billion fortune, and Tesla, a company that
ended June with $2.2 billion in cash, each are paying $20 million to
resolve the case, which stemmed from a tweet Musk sent on Aug. 7
indicating he had the financing in place to take Tesla private at a
price of $420 per share.
“A reckless tweet cost a lot of money — the $20-million tweet,” said Michelle Krebs, executive analyst at Autotrader.
The
deal could remove one cloud that hangs over Tesla. Investors fretted
about the company’s ability to cope without Musk, a charismatic
entrepreneur whose penchant for coming up with revolutionary ideas has
drawn comparisons to one of Silicon Valley’s most revered visionaries,
Apple co-founder Steve Jobs.
Tesla’s stock plummeted 14 per cent
Friday after the SEC filed its lawsuit, erasing more than $7 billion in
shareholder wealth. Many analysts predicted the shares were bound to
fall even further if Musk had been forced to step down. Tesla’s stock
has dropped 30 per cent since Aug. 7, closing Friday at $264.77.
The
steep downturn in Tesla’s market value may have influenced Musk to have
an apparent change of heart and negotiate a settlement. Musk had
rejected a similar settlement offer before the SEC sued Thursday,
maintaining he had done nothing wrong when he posted a tweet declaring
that he had secured the financing to lead a buyout of Tesla.
The SEC alleged Musk wasn’t close to locking up the estimated $25 billion to $50 billion needed to pull off the buyout.
Musk and Tesla reached their settlement without admitting to or denying the SEC’s allegations.
The
resolution “is in the best interests of our markets and our investors,
including the shareholders of Tesla,” SEC Chairman Jay Clayton said in a
statement.
A Tesla spokeswoman said the company and Musk had no comment Saturday.
Besides
paying a fine and stripping Musk of his chairman’s title, Tesla also
must appoint two more directors who have no ties to the company or its
management. Musk will be allowed to remain on the board.
The
company also must clamp down on Musk’s communications with investors, a
requirement that might make its colourful CEO’s Twitter posts slightly
less interesting.
“Considering the drastic punishment the SEC had
announced, Musk and Tesla got lucky,” said Krebs, the Autotrader
analyst. “Musk at least remains at the helm of the company, and adding a
couple of board members is a good thing.”
The SEC also got what
it wanted by bringing the combative Musk down a notch and taking steps
to tone down his off-the-cuff remarks while forcing Tesla to expand its
board to counterbalance its CEO’s power, said Carl Tobias, a law
professor at the University of Richmond. Besides being CEO, Musk owns a
roughly 20 per cent stake in Tesla.
“Maybe this will make Musk stop acting so crazy and fly right,” Tobias said.
Besides
tweeting about a deal that the SEC alleged he didn’t have money to pay
for, Musk had been engaging in other erratic behaviour that had been
raising questions about whether he should remain CEO.
Musk had
raised hackles by ridiculing stock market analysts for posing fairly
standard questions about Tesla’s shaky finances, and calling a diver who
helped rescue 12 boys on a Thai soccer team from a flooded cave a
pedophile, triggering a defamation lawsuit. He was also recently caught
on a widely circulated video apparently smoking marijuana, a legal drug
in Tesla’s home state of California.
The erratic behaviour has
convinced more analysts that Tesla needs to find a replacement for Musk,
but the SEC settlement will allow the company to do so on its own
timetable, if it decides to hire a new leader.
Tesla is also under
mounting pressure to overcome its past manufacturing problems and
produce enough vehicles to become consistently profitable after years of
huge losses.
A gauge of the company’s progress should come within
the next few days when Tesla is expected to release its vehicle
production numbers for the July-September period.
Musk has pledged Tesla would manufacture an average of 7,000 vehicles per week, enough to turn a profit.
Tesla
needs to turn the financial corner because it has $1.3 billion in debt
coming due during the next six months. If it keeps burning through its
cash, Tesla will likely have to raise more money to pay its bills —
something that analysts say will be easier to do without any lingering
doubt who will be running the company.
By Michael LiedtkeThe Associated Press
Sat., Sept. 29, 2018
SAN
FRANCISCO—Tesla and its CEO Elon Musk have agreed to pay a total of $40
million (U.S.) and make a series of concessions to settle a government
lawsuit alleging Musk duped investors with misleading statements about a
proposed buyout of the company.
The settlement with the
Securities and Exchange Commission allows Musk to remain CEO of the
electric car company but requires him to relinquish his role as chairman
for at least three years.
No comments:
Post a Comment