Elon Musk has taken the U-turn and has given up his position as Chairman of Tesla (TSLA) after agreeing to the terms set by the Securities and Exchange Commission (SEC). Musk has been under the US watchdog scanner since posting “misleading” tweets on August 7 of taking the electric carmaker private for $420, and that funding was secured.
Musk will continue as the executive chief, though he will be barred for three years from contesting for the role of chairman. Meanwhile, he will continue to be part of the Tesla board.
As the agreement demanded, Tesla is required to appoint two independent directors to the board along with an independent chairman. The CEO, who has not yet admitted of his guilt, needed to pay a fine of $20 million and his communications are under the eyes of a board committee, who will be appointed by the company.
Tesla will also pay $20 million as penalty. The total penalty amount $40 million will be distributed to harmed investors under a “court-approved process”, according to the SEC.
It was earlier reported that the CEO backed out of the deal with the SEC as Musk felt by agreeing to it, he wouldn’t be doing justice to himself. Musk was earlier offered a reasonable peace deal of paying a nominal fine and stepping down as Chairman for two years, but he gave a thumbs down in the last minute.
The watchdog believed that the CEO assumed 20% premium over the stock price at that time for deriving the $420 price. Also, the price has significance in the marijuana culture and Musk’s belief that his girlfriend would be amused by it. The SEC has been looking for more than just assumptions as kicking a CEO out of his own company is serious business.
SEC alleges in the statement, “Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions.” It’s true that Musk’s tweet was misleading, but was it intentional to be called fraud? The SEC is unclear about it.
“The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.
Meanwhile, the majority of the analysts have previously expected Musk to exit from Tesla due to the SEC civil action but the exit was predicted to be a permanent one instead of temporary. Also, they believe that Tesla’s shares will likely react to the exit by turning to the ground.
Musk has been the creative engine behind Tesla and had turned Tesla into one of the most valuable American carmakers. His resignation as the chairman will be concern for the Tesla investors. The stock remained grounded throughout Friday and ended down 13.90 at $264.77 on the Nasdaq. On Monday, the shares are likely to open lower and expected to continue to trade in the negative territory.