Clambering to contain the fall out from co-founder Elon Musk’s tweet about taking Tesla private, the company has reached a settlement with the Securities and Exchange Commission to the tune of $20 million. The agreement, which resolved a series of securities fraud charges, also requires Musk to pay a separate $20 million fine and step down as chairman for three years.
It all started in early August when Musk tweeted that he was “considering taking the company private” and that he had secured funding to do so. According to the official SEC complaint, Musk claims that he calculated the $420 per share price based on a premium of that day’s closing price without consulting the potential funder. The share price would have been $419 each; however, the complaint quotes Musk saying that he rounded up the price “after recently learning about the number’s significance in marijuana culture and thought his girlfriend ‘would find it funny.’”
What resulted was a lawsuit brought by the SEC in federal court for misleading investors. Musk will still be allowed to remain CEO. Had he not reached a settlement with the SEC, that title would have been in jeopardy as well. As per the settlement, two new, independent board members will be added as well as a new chairperson. According to the BBC, Musk will also have to comply with new communications procedures when tweeting about Tesla.
Tesla has felt the negative repercussions of its legal battle with the SEC over the last week. On Friday, its stock value dropped nearly 14%. According to the New York Times, investors believed that Musk had become too consumed by criticism on social media. The total $40 million fine will be dispersed among investors who were affected by the market fluctuations that resulted from Musk’s tweet, reports Wired. Legal experts have weighed in and said that the outcome could have been a lot worse.
Had Musk not settled with the SEC, the results could have been much more severe. The original suit called for Musk to be barred, potentially for life, from becoming an officer or director for any public company.
In exchange for accepting the settlement, the SEC is not charging Tesla or Musk with fraud.