Elon Musk To Resign As Tesla Chairman, Pay $20 Million Fine In SEC Settlement Over Catastrophic '420' Tweet

Tesla CEO Elon Musk at a press conference at the Nevada State Capitol in Carson City, Nevada, in 2014. (Photo: Max Whittaker, Getty Images)

In August, Tesla CEO Elon Musk set off an entirely preventable and catastrophic chain of events by tweeting that he was "considering taking Tesla private at $US420 ($581). Funding secured." Musk provided no financing details, and the Securities and Exchange Commission later determined that he never finalised any kind of deal with the Saudi sovereign wealth fund behind the ostensible buyout. Last week, it slapped him with fraud charges for making "false and misleading" statements and not complying with regulatory requirements.

Musk and the company's board initially appeared to be digging in for a battle, but per the Washington Post, on Saturday he caved. Musk has agreed to a settlement in which both he and Tesla will pay out separate $US20 ($28) million fines, and Musk will step down as Tesla's chairman for at least three years. The only silver lining is that Musk will be allowed to remain the company's CEO, the Post wrote:

Tesla chief executive Elon Musk agreed on Saturday to pay a $US20 ($28) million fine and step down as board chairman as part of a settlement with the Securities and Exchange Commission.

Tesla will separately pay another $US20 ($28) million and agreed to add two new independent directors to its board and monitor the billionaire's public communications more closely... Under the settlement, Musk will resign as chairman of the automaker within 45 days and be barred from that position for three years. But he will remain Tesla's CEO and does not have to admit wrongdoing as part of the deal.

In a statement, the SEC wrote:

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.

This is a massive humbling for Musk, who in recent months has seen a number of bizarre and mostly self-inflicted controversies over everything from a defamation lawsuit brought by a Thai cave rescuer he baselessly accused of pedophilia to allegations of drug use and a New York Times interview in which he was described as alternating "between laughter and tears."

In the meantime, a number of top Tesla executives have left the company and a National Labour Relations Board investigation into practices at its Fremont, California production facility has continued to gain steam. Removal as chairman of the board will introduce significant limits on Musk's ability to unilaterally exert power over the company.

It's also humiliating because the SEC alleged in the suit that Musk chose the number 420 specifically to impress his (possibly ex-) girlfriend, the musician Grimes:

According to Musk, he calculated the $US420 ($581) price per share based on a 20 per cent premium over that day's closing share price because he thought 20 per cent was a "standard premium" in going-private transactions. This calculation resulted in a price of $US419 ($580), and Musk stated that he rounded the price up to $US420 ($581) because he had recently learned about the number's significance in marijuana culture and thought his girlfriend "would find it funny, which admittedly is not a great reason to pick a price."

According to CNBC, Tesla stocks on Nasdaq had already "closed down around 14 per cent on Friday at $US264 ($365) per share."

However, it could have been worse: Without a settlement, the SEC would have sought to have Musk "be prohibited from acting as an officer or director" of a public company. As CEO, he will remain in charge of Tesla's day to day operations, and the company hasn't lost a founder widely viewed as a visionary critical to its future.

As the New York Times noted on Friday, if Musk had refused to accept a settlement the matter could have dragged on for years.

Correction: A previous headline for this article incorrectly indicated that Musk had resigned as Tesla's chairman. He has agreed to resign within 45 days, but has not yet formally done so. We regret the error.

[Washington Post]