Musk settles securities fraud case with US regulator

Mr Elon Musk, under pressure from his lawyers and investors of Tesla, the company he co-founded, reached a deal with the Securities and Exchange Commission (SEC) last Saturday to resolve securities fraud charges. The settlement will force him to step aside as chairman for three years and pay a US$20 million (S$27 million) fine.

The SEC announced the deal two days after it sued Mr Musk in federal court for misleading investors over his post on Twitter in August that he had "funding secured" for a buyout of the electric-car company at US$420 a share. The deal with the SEC will allow him to remain as chief executive, something that could have been jeopardised had he gone to battle with the agency.

It was not clear why Mr Musk changed his mind so quickly.

People familiar with the situation, who were not authorised to speak publicly, said lawyers for Mr Musk and the company moved to reopen talks with the SEC last Friday. During that time, one of Tesla's lawyers became instrumental in securing a deal with the SEC, according to a person familiar with the negotiations. The whipsaw events of the past few days followed a series of self-inflicted wounds by Mr Musk.

His tweet about taking his company private, along with attacks on critics on social media, raised concerns with investors about whether Mr Musk had become too focused on criticism from so-called short-sellers, who had been making bets against him and Tesla. The company has recently been struggling to meet audacious production goals for its Model 3 sedan.

Mr Musk is widely regarded by analysts and investors as the creative engine behind Tesla, and he has helped the company become one of the most valuable US carmakers. But Tesla has lurched from crisis to crisis over the past year, and has since scrambled to contain the fallout from Mr Musk's tweet.

The company, whose shares have been hit hard since the SEC filed the lawsuit, did not immediately comment on the settlement. Last Friday, its stock dropped almost 14 per cent.

Tesla, which is also settling with the SEC, will pay a US$20 million penalty.

The company was not charged with any fraud.

In addition, the company will add two independent directors and take steps to monitor Mr Musk's communications with investors. It will also create a permanent committee of independent directors to monitor disclosures and potential conflicts of interest.

SEC chairman Jay Clayton said the deal with Mr Musk and Tesla sent a message that "when companies and corporate insiders make statements, they must act responsibly, including endeavouring to ensure the statements are not false or misleading".

In settling, Mr Musk neither admitted nor denied misleading investors under the civil fraud charge, which means he cannot later say he did nothing wrong. The settlement faulted Tesla for failing to make sure that information important to investors was disclosed in a proper and timely manner.


A version of this article appeared in the print edition of The Straits Times on October 01, 2018, with the headline 'Musk settles securities fraud case with US regulator'. Subscribe