Sigh. After agreeing to a settlement over the weekend with the U.S. Securities and Exchange Commission, which brought a suit against the Tesla CEO a few days ago that threatened to be an expensive distraction for the electric carmaker, Elon Musk is back to being, well, Elon.
In spite of the fact the settlement agreement includes the stipulation that Tesla will hire someone to keep an eye on Elon’s tweets, the controversial entrepreneur nevertheless fired up Twitter this morning and shared a link to the video for the hip-hop song “O.P.P.” with his more than 22 million followers. He captioned it with “Naughty by Nature” and included a winking emoji.
If you weren’t already aware, it would be enough to fool you into thinking he hadn’t just agreed to a settlement with securities regulators that includes Elon forking over a penalty of $20 million as well as agreeing to step down as Tesla’s chairman. It was one of Elon’s first tweets since settling with the regulatory agency. It was a bit flippant, and a notification of both items back-to-back — news of the settlement, plus Elon’s tweet — leaves you with the impression Elon remains as unconcerned with The Man as ever.
As a quick reminder of what started all this, it was Elon’s tweet in August saying he was looking at taking Tesla private and had “funding secured.” The basis of the SEC’s suit was that Elon didn’t have funding secured at all and was potentially misleading investors.
From our piece this weekend walking through details of the settlement, in addition to paying a fine and stepping down as chairman Elon will still get to remain on Tesla’s board. The board will also bring on two new independent directors, with the ultimate goal of course being to keep some of Musk’s more controversial inclinations at bay.
A former SEC lawyer has since gone public with his assessment that Elon probably had a legal basis for his tweet. The whole thing, though, would have been a major and unnecessary headache for the company, which is why everyone has shaken hands and Elon is apparently back to being naughty by nature. On Twitter, of course.
Musk tweet signals he has no intention of behaving himself in the future.
Avoiding a court case allows Musk to remain as Tesla CEO.
The lawsuit involving Elon Musk and the SEC has come to a swift and somewhat unceremonious end. Amid speculation that Musk might potentially have to leave Tesla altogether, the SEC earlier today revealed they have reached a settlement agreement with Musk. As for the specific terms of the deal, Musk agreed to pay a $20 million fine with Tesla agreeing to pay an additional $20 million. Additionally, Tesla’s board will bring on two new independent directors, with the ultimate goal of course being to keep some of Musk’s more controversial actions at bay.
Notably, Musk will remain on board as Tesla CEO, though he will no longer be chairman of the company. All in all, it’s fair to say that Tesla and Musk were smart to settle with the SEC and put this bizarre saga in the rear view. If you recall, Musk sparked an avalanche of controversy when he fired off a tweet in August claiming that funding had been secured to take Tesla private at $420 a share. Subsequently, it emerged that Musk had not in fact secured funding from any party at all.
“This matter reaffirms an important principle embodied in our disclosure-based federal securities laws,” SEC chairman Jay Clayton explained in a statement on the matter. “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 later added.
The SEC’s full press release reads as follows:
The Securities and Exchange Commission announced today that Elon Musk, CEO and Chairman of Silicon Valley-based Tesla, Inc., has agreed to settle the securities fraud charge brought by the SEC against him last week. The SEC also today charged Tesla with failing to have required disclosure controls and procedures relating to Musk’s tweets, a charge that Tesla has agreed to settle. The settlements, which are subject to court approval, will result in comprehensive corporate governance and other reforms at Tesla—including Musk’s removal as Chairman of the Tesla board—and the payment by Musk and Tesla of financial penalties.
According to the SEC’s complaint against him, Musk tweeted on August 7, 2018 that he could take Tesla private at $420 per share — a substantial premium to its trading price at the time — that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote. The SEC’s complaint alleged that, in truth, Musk knew that the potential transaction was uncertain and subject to numerous contingencies. Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the possible transaction lacked an adequate basis in fact. According to the SEC’s complaint, Musk’s misleading tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to significant market disruption.
According to the SEC’s complaint against Tesla, despite notifying the market in 2013 that it intended to use Musk’s Twitter account as a means of announcing material information about Tesla and encouraging investors to review Musk’s tweets, Tesla had no disclosure controls or procedures in place to determine whether Musk’s tweets contained information required to be disclosed in Tesla’s SEC filings. Nor did it have sufficient processes in place to that Musk’s tweets were accurate or complete.
Musk and Tesla have agreed to settle the charges against them without admitting or denying the SEC’s allegations. Among other relief, the settlements require that:
- Musk will step down as Tesla’s Chairman and be replaced by an independent Chairman. Musk will be ineligible to be re-elected Chairman for three years;
- Tesla will appoint a total of two new independent directors to its board;
- Tesla will establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications;
- Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.
“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.
“As a result of the settlement, Elon Musk will no longer be Chairman of Tesla, Tesla’s board will adopt important reforms —including an obligation to oversee Musk’s communications with investors—and both will pay financial penalties,” added Steven Peikin, Co-Director of the SEC’s Enforcement Division. “The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.”
The SEC’s investigation was conducted by Walker Newell, Brent Smyth, and Barrett Atwood and supervised by Steven Buchholz, Erin Schneider, and Jina Choi in the San Francisco Regional Office and Cheryl Crumpton in the SEC’s Home Office.
Op-ed: Elon Musk is a brilliant entrepreneur—but he’s not a great manager.