Elon Musk to resign as Tesla chairman, but will remain CEO after fraud settlement

Tesla Inc and Elon Musk will pay a fine of $20 million each to financial regulators, while Musk will step down as chairman of the American electric carmaker, according to a statement by the US Securities and Exchange Commission.

“The $40 million in penalties will be distributed to harmed investors under a court-approved process,” the SEC said.  

The announcement of the settlement comes after the SEC on Thursday charged Musk for “false and misleading tweets” about a potential deal to take Tesla private. Tesla shares sank the following day, plunging nearly 14 percent to end the week at $264.77.

On Aug. 7, 2018, Musk told his 22 million followers on Twitter that he could take Tesla private at a price of $420 per share, a substantial premium to the carmaker’s trading price at the time, according to the SEC complaint. He added that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote. 

“In truth, Musk had not discussed specific deal terms with any potential financing partners, and he allegedly knew that the potential transaction was uncertain and subject to numerous contingencies,” the regulator said.

Musk’s tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to “significant market disruption,” the SEC added.

Going forward, Musk will remain Tesla chief executive but be replaced in his role as chairman by an independent chairman. He will be ineligible to be re-elected as chairman for three years, the SEC said.

Moreover, Tesla has been ordered to appoint two new independent board members and establish a new committee of independent directors. It will also put in place “additional controls and procedures to oversee Musk’s communications.”

According to a recent report by the Wall Street Journal, Musk believed he had a verbal agreement in place with Saudi Arabia’s Public Investment Fund (PIF) to help finance a plan to take the electric automaker private. The Saudi wealth fund had previously acquired a minority stake in the company of between 3 and 5 percent, making it one of Tesla’s largest shareholders.