Musk Settles with SEC, Booted as Tesla Chairman. SEC Forces Tesla to Control his Lie-Tweets

Not a slap on the wrist, but not a summary execution either.

Tesla CEO and Chairman Elon Musk settled the fraud charges that the SEC had brought against him over his blatant lies he tweeted in early August about taking Tesla private at $420 a share, “Funding secured,” only to recant a couple of weeks later. As part of the deal, which the SEC announced today and which is still subject to court approval, Musk has to – I almost wrote “quit tweeting while high” – do the following:

  • Step down as Chairman of Tesla, to be replaced by an independent chairman. Musk will be ineligible to be chairman for three years;
  • Pay $20 million penalty.

But he gets to stay on as CEO and as board member – and apparently, he gets to keep his Twitter account, but with some board oversight (see below).

Today, the SEC also sued Tesla, and this being a busy Saturday, settled with Tesla all in one fell swoop.

The SEC charged in the complaint, filed in Federal Court today, that Tesla failed “to implement disclosure controls or procedures” over Musk’s off-the-wall tweets about Tesla:

“Musk has used his Twitter account to distribute material information about Tesla, including company financial projections and key non-financial metrics.”

“Tesla, however, did not have disclosure controls or procedures in place to assess whether the information Musk disseminated via his Twitter account was required to be disclosed in reports Tesla files pursuant to the Exchange Act….”

“Nor did it have sufficient processes in place to ensure the information Musk published via his Twitter account was accurate or complete.”

“By engaging in the conduct, Tesla violated, and unless restrained and enjoined will violate again, Rule 13a-15 [17 C.F.R. § 240.13a-15] of the Exchange Act [15 U.S.C. § 78a, et seq.].

Both Musk and Tesla are settling the charges against them “without admitting or denying the SEC’s allegations.” In addition to what Musk has to do and pay, Tesla has to:

  • Replace Musk with an “independent Chairman;”
  • Appoint a total of “two new independent directors to its board;”
  • “Establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications.”

The $40 million in penalties that Musk and Tesla have to pay combined will be “distributed to harmed investors under a court-approved process.” Would those be the short sellers? Probably not.

The SEC announcement added:

As a result of the settlement, Elon Musk will no longer be Chairman of Tesla, Tesla’s board will adopt important reforms —including an obligation to oversee Musk’s communications with investors—and both will pay financial penalties. The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.

This settlement with Tesla is more than a slap on the wrist – particularly having to bring in two independent directors that will start nosing around some things – but it’s not exactly a summary execution. The company will now get a modicum of corporate oversight, and it might even try to tamp down on the blatant lies that Musk spews forth via his tweets in order to manipulate up the share price.

In terms of the penalty for Tesla, well, its $20 million penalty is a fly speck. It represents just two business days of net losses for Tesla, based on its Q2 net loss, its largest net loss ever. So this part won’t add much to the cash-burn machine.

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  57 comments for “Musk Settles with SEC, Booted as Tesla Chairman. SEC Forces Tesla to Control his Lie-Tweets

  1. Old dog says:

    “without admitting or denying the SEC’s allegations.”

    Elon Musk, very much like Elizabeth Holmes, are textbook narcissists. They think everything they do his glorious. Revolutionary.

    Admitting to wrongdoing? Fat chance. Admitting that they are frauds? Ha!

    The nagging question is, how is it possible that these types are able to bamboozle clever, educated people, so easily?

    • Javert Chip says:

      …The nagging question is, how is it possible that these types are able to bamboozle clever, educated people, so easily?…

      That’s easy: those “clever, educated people” are greedy.

      But you already knew that.

      • Sinbad says:

        Clever and educated are not the same thing.

        Albert Einstein for example only got a mediocre education.
        He wrote that the spirit of learning and creative thought was lost in strict rote learning.
        Michael Faraday was also poorly educated, Kepler studied philosophy at school, and Newton Latin and Greek.

        Education can sometimes help the truly clever, but for most of us it’s just a way of earning more money.

        • alex in san jose AKA digital Detroit says:

          Einstein was very well educated; his family was wealthy and would have hired the world’s leading mathematicians to just tutor their son but they were not available, so they hired up-and-comings like Angelo Besso as tutors.

          The whole situation was pretty much the same as another guy from a somewhat similar background who developed nevertheless into a wonderful human being, Yehudi Menuhin the violinist, whose parents were real “stage parents” and were dressing him up to look much younger pretty much up until his voice started changing.

          Einstein was a super-smart guy; no one can take that from him. But all this gilding about his being under-educated, being from some kind of a less-than-privileged background etc has got to stop.

          The same for a lot of these others. Yes, humble-ish backgrounds compared to a kid with a laptop and Google now, but upper-middle-class or better in their day.

      • JZ says:

        The educated tech folks in Man-Jose really need something to call a fashion to show their taste. You know, we, as guys, can NOT do make up or dress up or get a designer bag. So, we will drive Telsla! Hi everybody, this is me, my taste, different from you all! I am driving the future ahead of you and I have a taste for green energy!

        • RD Blakeslee says:

          One famous celebrity guy rode an ass into Jerusalem …

        • Todd Cory says:

          “I am driving the future ahead of you and I have a taste for green energy!”

          driving on the power of photosynthesis? nope!

          and your coal powered car is not green.

          sorry, but techno-cornucopianism cannot mitigate finite planet realities.

      • Mike says:

        I am not impressed with SEC. Apparently, it can get Martha Stewart and now intimidated Tesla. Unfortunately, it is “helpless’ as a baby bird against the banksters, Maddoff, the hundreds of Wall Street persons trading on insider information, etc.

        I would like to see a special prosecutor and the FBI investigate how it is that the SEC supposedly only manages to go after so few, unconnected-politically, well known figures while letting thousands of crooks go about unmolested and uninvestigated. It is as if a few arrests are being made to cover up massive inaction. They remind me of the statutes of little monkeys: see no evil, hear no evil, etc.

        Are they crooked or incompetent?

    • alex in san jose AKA digital Detroit says:

      If only other textbook narcissists in positions of power were told to control their lie-tweets …

    • Bobby Corsica says:

      Greed

    • Tom T says:

      Old Dog birds of a feather… ?

    • fajensen says:

      Clever, educated people are the easiest to fool. They tend to believe that they are so much smarter and so much more educated than anyone else are, that nobody can pull a fast one on them. So, they don’t check much.

      PS –

      I don’t think many of those big investors even think about fraud. There is not enough time to check, the amount of money they have to invest are too big for scrutinising every little thing. They simply place – say – 2% of their wad into many different “interesting things” initially and if it moves, they may place more. If it blows up … well, shit happens and it’s maybe other peoples money.

      Investment on this scale becomes like live-betting on sports games. Who cares if the game is fixed? As long as one can (on average) close the bets better off than they were bought for, one is still winning. Occasionally a long-shot goes all the way, which is even better, one can then retire to a palazzo, writing books and seminars about Investing – now being a renowned expert and all.

  2. MarkB says:

    If only the same rhetoric and restraint could be applied to potus…

  3. RepubAnon says:

    Hopefully, this will force Tesla to stop with the vaporware-style promises, and start delivering on its commitments. If Tesla can turn itself around and start delivering product profitably, they could yet succeed.

    Alas, I expect GM or Toyota will purchase Tesla’s assets as part of the Chapter 11 process. My money’s on Toyota if their hydrogen powered Mirai cars turn out to be impractical due to a lack of fueling stations.

    • IronForge says:

      CA already committed to H2 Stations. Also, they’re committed in JPN to make it available everywhere.

      H2 being an Industrial Gas, is available.

      The special deals with TM Mirai and HMC Clarity are that the Car Companies are Eating the first 3 Years’ Fuel Costs. So, if you lease one for 3 Years, you currently pay Nothing for your Fuel.

      • alex in san jose AKA digital Detroit says:

        That explains the H2 station that’s near me…

      • RepubAnon says:

        It’s 3 years or $15,000 worth of H2. Not sure what it costs to fill up a tank, or what the cost per mile is.

        Unlike high-pressure hydrogen refueling stations, electricity is everywhere already. For long distance driving, both electric cars and hydrogen cars need to build out a refueling infrastructure.

        We’ll have to see how widespread the hydrogen stations become. Hydrogen has some advantages over electricity in that it is probably faster to refuel a fuel cell than it is to recharge a battery. However, electric cars can be recharged from available electric sockets (a long time for 120v, shorter for 240v, high amp sockets).

        If Tesla doesn’t survive its current woes, Toyota may well want to expand its product line to include electric cars running on battery storage rather than hydrogen fuel cells. (Note that a hydrogen-fuel cell semi would be more practical than a battery-powered one. This would help drive construction of hydrogen refueling stations along the major highways.)

  4. Tom Stone says:

    “Preventing further market disruption” is the phrase that jumped out to me.
    Barring Musk from serving as a corporate officer for a period of years or forever would cause Tesla’s stock price to drop like a rock.
    Musk IS Tesla in the public mind.
    The real value of Tesla resides in the brand and the intellectual property, $2 Billion on the high end.
    That kind of sudden ( And well deserved) price correction might well spook “Investors” in other “Tech” companies, a certain taxi service comes to mind.
    Just before the mid terms?
    Tell me about that bridge you have for sale…

  5. Olivier says:

    You can’t put Musk in the same category as Holmes: Musk has a space company that is doing well and Tesla does turn out functioning cars, if not profitably. What did Holmes ever do?

    • Larry says:

      Bingo. Musk is just burning money in an environment that funds cash burning operations because the big dumb money is desperate for yield. Will Uber or WeWork ever turn a profit? Who cares, Toyota just dumped a half billion down the Uber well and WeWork had a summer camp!

      While Musk has managed to make a profit, his unhinged Twitter habits are starting to undermine the fantasy of infinite profits just over the horizon. Uber forced Kalinick out after he became far too toxic and the big money realized he was standing in the way of an IPO. Will this settlement result in the same for Musk? Time will tell.

      • Gibbon1 says:

        I think Musk is manic depressive. Or maybe just suffers bouts of mania.

        • Jackk says:

          With things the way there today (upside down), Musk will make a great US President on the heels of Trump.

  6. Auld Kodjer says:

    I have a new definition of Madness: Accepting the role of Chairman while Musk still runs the company

  7. MCH says:

    Dammit, well, that’s ok, if Musk can’t lie about a public company, there is a private one that he owns where he can tweet about bravely defending the plant from ETs with his awesome rockets and lasers mounted on sharks. Oh, also forgot flame throwers and his war against the mole men from underground using his boring machines.

    • Duke DeGuise says:

      And don’t forget the public service he provides with his pedophile alerts.

      Whatta guy.

  8. davefairtex says:

    Well, some are more equal than others.

    Poor old Martha Stewart got hauled off to jail for 5 months (plus a felony conviction!) for telling her fib, and Musk gets a very affordable $20M spanking for his teensy untruth.

    It’s good to be da king!

    https://www.youtube.com/watch?v=StJS51d1Fzg

    • robt says:

      I remember that part of her problem was that she said she wasn’t guilty, which was interpreted as unduly influencing the stock price. Remember: do not claim you are innocent! You will be further punished.
      The upside was that she served her time with class, made a lot of friends, and helped people during the time she was in.
      No whining or endless appeals for Martha.

      • Michael Fiorillo says:

        She was convicted of lying to federal agents – yet more proof that you NEVER speak with law enforcement w/o a lawyer or a written statement of immunity – but not of the crimes for which she was being investigated.

  9. timbers says:

    Why isn’t the SEC prosecuting Musk for prison time? People who steal $1 sodas at McDonald’s are prosecuted for prison time. Why isn’t Musk? He stole much more than a $1 soda.

    • Wolf Richter says:

      So far, shareholders think he made them rich. There won’t be a real problem until the shares collapse :-]

      • David in Texas says:

        I don’t think the SEC wanted to be seen as the party that caused TSLA to collapse, which it could have if they had taken a much harsher line. TSLA has enough problems as it is, as Wolf and others have documented. Debt coming due, production problems, quality problems, no ownership of the most important IP, and growing competition in EVs from companies who have been making cars profitably for 100 years.

        When things do collapse, Musk and TSLA shareholders can’t say “everything was fine until the evil SEC made us go under.” A $20 million fine looks like a big number to the general population (even though for Musk it was like giving up spare change under the sofa cushions). The SEC looks like it’s doing something; and it doesn’t cause TSLA to melt down. Everybody wins!

    • intosh says:

      Because money talks. The SEC probably got a few phone calls from Lone Skum’s powerful “friends”. There are much more money invested in Tesla than money shorting it.

    • m says:

      SEC can’t give prison time, DOJ his working on it

      • intosh says:

        “David in Texas” above is right. Tesla is too big to fail. No authority is willing to play the “bad guy” who popped the dream bubble of millions of people, and wiped out billions of dollars from investors, small and large, in the process.

  10. ewmayer says:

    Gotta say I’m disappointed in the SEC, especially after Tesla Glorious Thought Leader™ Musk rejected the initial settlement offer. If this case wasn’t a slam dunk for the SEC, what is?

    SEC said s.t. to the effect of “to prevent further disruption in the markets” in the settlement announcement – isn’t this still the same captured-regulator BS Obama DOJ #2 Lanny Breuer admitted on 60 Minutes? Hello, SEC – it’s not part of your mandate to ensure minimal decreases in shareholder value of the companies you go after.

    • James Levy says:

      It’s a case of cognitive capture, which is more insidious than the old bags of money under the table because the educational indoctrination process in neoliberal thinking is so pervasive that the kinds of people whom the SEC hires and politicians appoint are all members of a thought collective that sees finance and the stock and bond markets AS the economy. It’s as if people believed it was unthinkable to jail any dad who earns a living because since families need breadwinners, we just can’t arrest such people as it would be too “disruptive”, so give ’em a fine and hope they don’t do whatever they did again.

  11. Phoenix_Ikki says:

    Looks like a partial win for Musk, guess we’ll see on Monday morning opening bell. As long as EM is still the CEO, guess their next round of raising capital will definitely be easier than if he is completely out of the picture.

    The chronicle of EM is starting to remain me of all the drama of the HBO show Silicon Valley except much less funnier..

  12. raxadian says:

    Will the oversight over his Twitter account be a disclaimer that says “Musk is a liar, take whatever he posts with a grain of salt?”

    • Crysangle says:

      I think that is not nice or at all cool, something more cryptic and mundane will be used like “Got Munchies?”

  13. KPL says:

    This is problem with the present rule of law and settlement without accepting anything – it just infests the legal process with moral hazard. How? Tomorrow someone else can tweet like Musk, get share price to jump, sell $50 million of shares and pay up $20 million and walk all the way to the bank. This is a great legal system that works for the for the guys who can pay up and carry along their merry way. Some might call it a decadent system.

  14. L Lavery says:

    Brilliant move by Elon. If Tesla now goes down he’ll no longer be to blame. It was the SEC’s fault, or those that should have been constraining him.

  15. MD says:

    Jeez that was a fast settlement…quicker than all the identity and credit checks Joe Schmoe has to go through to get a loan to feed the kids, I’d wager.

    Chuck ’em a few crumbs from the table and it all goes away – even what appears to be blatant fraud!

    Truly is one rule for some…sure indicator of a third-world country.

  16. MC01 says:

    I am honestly surprised by how heavy the penalties are, especially financial ones. While I expected the settlement to be substantial a $40 million fine, to be split evenly between Musk and Tesla, is far more than I expected.

    Also the speed with which Musk capitulated confirms my suspicions: the guy was not high, drunk or had his Twitter account hacked by evil Russian spies wearing fur hats. His lawyers did what good lawyers must do sometimes: they advised not to fight the charges but to settle as quickly as possible, even if this meant taking a financial hit.

    People here bemoaning Musk was not dragged in the town square, tarred, feathered and paraded around for small children to laugh at have no idea how the legal system works.
    The SEC is a whole lot like an ancient diesel engine from before the days of glow plugs and reliable electric starters: it takes forever to start but once it’s in motion it’s impossible to stop. Had Musk chosen to fight the SEC to the bitter end he would have been steamrolled, or worse.
    Remember Martin Shrekeli? The guy chose to fight back, most likely against his attorneys’ advice. It was the worst decision of his lifetime.
    The Wall Street investors he had knowingly and willingly scammed are making an example of him. They are not using hitmen or heavies hired from the mob: they are using the US legal system to utterly destroy him, piece by piece. He’s like an elephant being slowly devoured by lions while still alive: not a pretty sight.

    Musk’s lawyers got the message and he was smart enough to heed it.
    Perhaps he’ll change his tune elsewhere.

    • robt says:

      Shrkeli’s investors all made money; some of them a lot of money. It just took him longer than promised to pay back – he paid them in shares that increased in value.
      That was acknowledged by the prosecutors, but it didn’t exonerate him.
      Shkreli’s biggest problem was mainly that he had an unfortunate demeanor and little patience explaining himself.

    • elysianfield says:

      ” He’s like an elephant being slowly devoured by lions while still alive…”

      I think you are being a bit harsh regarding Martin’s situation;

      Three meals a day,
      A warm place to sleep,
      Much “personal time”…
      And I hear the sex is great….

  17. kk says:

    Why so angry? Private business, no government rents and Musk hardly pretends to be the stolid dependable type. If you ride on the back of a motorcycle with the local bad boy you can hardly complain when he goes on a bender.

  18. jb says:

    be circumspect with your electronic messaging . The internet is indelible and unforgiving . If your mental state is less than normal or altered best to forgo communication. I had a boss that once told me ” you can’t regret something you didn’t say” this has been a public service announcement. :)

    • Crysangle says:

      That is a very regretful circumstance for a person , to fear speaking.

    • Paulo says:

      @jb,

      Your boss gave very good advice. I used to be a union rep and had to save one guys job (twice) who liked to send emails late at night…after too much wine. The last time I said to him, “This one is serious. You should probably be suspended for awhile and they might try and fire you. The best thing to do is ‘fall on your sword, admit your mistake, and accept responsibility”. He did. This totally spiked the employer’s guns and all the emailer had to do was publicly apologize for his mass company message (about the boss). It was a whew moment and it saved his job. He needed to apologize anyway because what he wrote was way way out of line. If I was the employer I would have fired him. Anyone would have.

      I suppose in today’s world it would be twitter and facebook posts that would tank a career. Like Muskie.

      Or maybe yearbook entries, (from 35 years ago) :-)

      Did you drink and dial?
      https://www.youtube.com/watch?v=W2zdCtFCcTA

  19. Tom Kauser says:

    HUDSON! The idea is much too important to leave to a pothead genius!

  20. Ambrose Bierce says:

    New CEO, is that another reason to squeeze the shorts?

  21. Jon says:

    All this was nothing but a dog and pony show orchestrated by SEC.

    • michael says:

      Agreed.

      • Michael Fiorillo says:

        Yes, correct me if I’m wrong, but as CEO isn’t he far more involved in daily operations than as Chairman of the Board?

        And he’s still on the Board…

        And assuming his personal finances aren’t hugely over-leveraged, the fine is bupkes for a billionaire with adequate cash flow…

        The grifters get over yet again.

  22. Bobber says:

    I wonder if the SEC was light on penalties because the stock went up, but then went down rather quickly, and then down some more. In other words, the damages were likely limited.

    That said, I’m sure there were a few poor saps that were short Tesla, then covered the next day after Musk’s illegal statements.

  23. RON says:

    TOO BAD

Comments are closed.