Elon Musk Reaches $20 Million Settlement and Steps Down as Tesla Chairman in SEC Agreement

On Saturday, Elon Musk agreed to resign as Tesla’s chairman and pay a $20 million penalty to settle charges filed by the Securities and Exchange Commission earlier that week.

As part of the settlement, pending court approval, Musk will retain his position as CEO, but he must step down as chairman of the board within 45 days. He will be ineligible for reelection for the next three years, based on court documents.

Musk accepted the SEC’s offer “without admitting or denying the allegations in the complaint,” according to a court filing.

In a related matter, Tesla also agreed to pay $20 million to resolve allegations that it inadequately monitored Musk’s tweets.

The SEC stated in a press release, “The combined $40 million in penalties will be allocated to affected investors through a court-approved plan.”

Additionally, Tesla has committed to appointing two new independent members to its board and creating a committee to oversee Musk’s communications.

Tesla declined to comment further, although a spokesperson confirmed Musk will remain a board member.

This announcement from the SEC follows a lawsuit filed against Musk just two days prior, which claimed he misled investors. The lawsuit revolves around tweets Musk posted on August 7, where he claimed he had secured funding to take Tesla private at $420 per share, which caused the stock price to surge. The SEC asserted that he did not have the necessary funding.

The lawsuit sought to bar Musk from holding any officer or director position in publicly traded companies.

Musk described the SEC’s lawsuit as “unjustified.”

“I have always acted with the best interests of truth, transparency, and investors in mind,” he stated. “Integrity is the highest value in my life, and the evidence will demonstrate that I never compromised it in any way.”

CNBC reported, citing unnamed sources, that the SEC filed the lawsuit on Thursday after Musk rejected a prior settlement offer. In that proposal, Musk would have paid a minimal fine and stepped down as chairman for two years. He declined to accept these terms, feeling that doing so would compromise his integrity, according to the report.

A representative for Musk did not respond immediately to CNN’s request for comment on Saturday.

Jay Dubow, a partner at Pepper Hamilton and former member of the SEC’s enforcement division, remarked that it was “unusual” for the SEC to allow Musk to remain as CEO while resigning from the chairman role.

It’s surprising when considering “the severity of the conduct, if [the SEC] truly believed it was severe,” Dubow noted. “The CEO has more involvement than the chairman in everyday operations.”

He suggested that the SEC might have concluded that removing Musk as CEO could negatively affect Tesla’s stock prices, thereby harming investors.

Barclays analyst Brian Johnson recently estimated that Tesla’s stock carries a $130 “Musk premium,” which could vanish if he departs.

The potential for criminal charges against Musk from the Department of Justice remains uncertain.

Tesla confirmed earlier this month that the DOJ was examining whether Musk’s comments on taking his company private were criminal in nature.

Dubow expressed skepticism about any outcomes from the DOJ, saying, “My assumption is that while the DOJ may pursue something, it is more likely they will choose not to act.”

It appears the settlement has likely placated the SEC, reducing the impetus for action from the DOJ.

CNNMoney (New York) First published September 29, 2018: 5:46 PM ET