Blog Musk Settles SEC Fraud Charges, Will Step Down as Tesla’s Chairman

Tesla Chief Executive Elon Musk will give up his chairman title under the terms of a settlement with the Securities and Exchange Commission related to fraud charges, according to a release.

Musk and Tesla have agreed to settle the charges against them without admitting or denying the SEC’s allegations. Among other relief, the settlements require that:



Musk will step down as Tesla’s Chairman and be replaced by an independent Chairman. Musk will be ineligible to be re-elected Chairman for three years;

Tesla will appoint a total of two new independent directors to its board;

Tesla will establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications;

Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.



“The total package of remedies and relief announced today are specifically designed to address the misconduct at issue by strengthening Tesla’s corporate governance and oversight in order to protect investors,” Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, said in a release.

According to the SEC’s complaint against him, Musk tweeted on August 7, 2018 that he could take Tesla private at $420 per share — a substantial premium to its trading price at the time — that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote. The SEC’s complaint alleged that, in truth, Musk knew that the potential transaction was uncertain and subject to numerous contingencies. Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the possible transaction lacked an adequate basis in fact. According to the SEC’s complaint, Musk’s misleading tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to significant market disruption.

The settlement is subject to court approval.

 

[strangecosmos]

However, Elon Musk went too far with his twitter comment, and that pissed off a lot of people when it proved to be essentially a discussion outlined on a cocktail napkin. He could have made his life and everyone's life better if his tweet were posed differently. Perhaps something like, "All this noise coming from different places makes it difficult for us at Tesla Motors to focus on our mission. It would be so wonderful if we could take Tesla private and become removed from the public spotlight and stock market."

Lol, this is well said.

I can't find a copy of Tesla's settlement with the SEC. There are two separate settlements: one with Elon and one with Tesla. Tesla's is the one that requires the company to put controls on Elon's public disclosures. What are those controls, and how exactly will they work?

I don't know if there will actually be an attorney reviewing every one of Elon's tweets before they go out. In any case, I'm almost certain that Elon is not prohibited from tweeting, but he is prohibited from tweeting major, material disclosures about Tesla that are better suited to a Board-reviewed SEC filing or blog post.

I don't think the ~99.9% of tweets that are helpful, positive, or benign will be affected.

 

[strangecosmos]

Maybe...…

I have very little confidence in that though.

Why? I can't imagine the Board will nominate someone who Elon doesn't approve of. Elon has a vote in the decision, and the other Board members respect his opinion.

Even if the Board did, against the odds, nominate someone that Elon didn't think should be Chair, if Elon made his opinion known publicly, the shareholders could decide to reject the nomination and ask the Board to nominate someone else.

 

[S4WRXTTCS]

Question:


Is this kinda thing over?

This was 99.9% of what his tweets were like. Sounds kinda out of control doesn't it? <------extremely sarcastic.

Is this kinda thing over? ( critics....please respond ). I've got thousands just like this.

I'm worried that it is over, but I also question the usefulness of it in the first place.

That ultimately comes down to interpretation.

An optimist would see this as a great customer communication, and fun.

A cynic would look at this, and ask the question of how? Is this even possible to implement? The issue of the car connecting to a nearby phone isn't unique to Tesla. This also happens when someone drives the car into the garage.

I don't believe either issue has been solved, and it's 10 months since the tweet.

Does the average user really care about either? Why should it come down to dumb luck on who Elon replies to? Neither issue impacts me, but I'd vote for audiobook issue as having a priority.

 

[Garlan Garner]

Why? I can't imagine the Board will nominate someone who Elon doesn't approve of. Elon has a vote in the decision, and the other Board members respect his opinion.

Even if the Board did, against the odds, nominate someone that Elon didn't think should be Chair, if Elon made his opinion known publicly, the shareholders could decide to reject the nomination and ask the Board to nominate someone else.

I really hope you are right, however the SEC.....

Well...I'm willing to agree to disagree until we see what's going to happen.

I'm not angry....just totally disappointed in the SEC and their "one-strike you are out" policy.

 

[strangecosmos]

I really hope you are right, however the SEC.....

The SEC doesn't have a say in the decision of who to nominate as the new Chair. It's up to the Board.

 

[Garlan Garner]

The SEC doesn't have a say in the decision of who to nominate as the new Chair. It's up to the Board.

So the SEC only fines people and kicks them out?

I wish I had enough to make TESLA private. I would have secured their funding.

 

[strangecosmos]

So the SEC only fines people and kicks them out?

If they violate SEC regulations, yes, or behave in a such a way as to create a credible case that they violated SEC regulations.

Elon could have avoided losing his Chair position by drafting a blog post and sending it to the Board and some lawyers for review before publishing it. It would have taken a few minutes, maybe a few hours of extra effort. It's not that hard to avoid SEC enforcement action.

 

[Garlan Garner]

If they violate SEC regulations, yes, or behave in a such a way as to create a credible case that they violated SEC regulations.

Elon could have avoided losing his Chair position by drafting a blog post and sending it to the Board and some lawyers for review before publishing it. It would have taken a few minutes, maybe a few hours of extra effort. It's not that hard to avoid SEC enforcement action.

Still "one strike and you are out",

Judge, Jurry and in this case Executioner.

Oh well... there's nothing us shareholders can do about it. I sure do wish I had enough to secure the privatization.

 

[strangecosmos]

Oh well... there's nothing us shareholders can do about it. I sure do wish I had enough to secure the privatization.

Lack of funding wasn't the issue. Goldman Sachs and Silver Lake managed to find funders. One of the issues is that virtually all retail shareholders would have been forced to sell their shares. It would have created issues for institutional shareholders as well.

 

[Garlan Garner]

Lack of funding wasn't the issue. Goldman Sachs and Silver Lake managed to find funders. One of the issues is that virtually all retail shareholders would have been forced to sell their shares.

What was the issue then?

 

[strangecosmos]

Check out Elon's blog post "Staying Public":

Based on all the discussions that have taken place over the last couple of weeks and a thorough consideration of what is best for the company, a few things are clear to me:

• Given the feedback I’ve received, it’s apparent that most of Tesla’s existing shareholders believe we are better off as a public company. Additionally, a number of institutional shareholders have explained that they have internal compliance issues that limit how much they can invest in a private company. There is also no proven path for most retail investors to own shares if we were private. Although the majority of shareholders I spoke to said they would remain with Tesla if we went private, the sentiment, in a nutshell, was “please don’t do this.”
• I knew the process of going private would be challenging, but it’s clear that it would be even more time-consuming and distracting than initially anticipated. This is a problem because we absolutely must stay focused on ramping Model 3 and becoming profitable. We will not achieve our mission of advancing sustainable energy unless we are also financially sustainable.
• That said, my belief that there is more than enough funding to take Tesla private was reinforced during this process.

After considering all of these factors, I met with Tesla’s Board of Directors yesterday and let them know that I believe the better path is for Tesla to remain public. The Board indicated that they agree.

 

[Garlan Garner]

Well...At least he is still emailing. That's good news.

Musk To Tesla Staff: Go All Out Sunday For Victory Beyond Expectations

 

[Buggle]

The problem with such conspiracy theories is not that people are above doing such things. They’re not. It’s that people aren’t nearly smart enough to pull it off.

I just like his usage of "triplicate". Sexy!

 

[mos6507]

Lack of funding wasn't the issue. Goldman Sachs and Silver Lake managed to find funders.

Where in the blog post does it say this? What we know is that the Saudis dropped out (hence funding not initially secured) and then you have this statement below:

"a number of institutional shareholders have explained that they have internal compliance issues that limit how much they can invest in a private company."

This tries to put a positive spin on the fact that Goldman and Silver Lake did not agree to pony up enough money. The reasons why are irrelevant. The bottom line is he couldn't secure funding--not from the Saudis and not from anywhere else. He can claim he could have eventually done it, but by giving a host of other excuses it provided a face-saving measure for giving up. Those other excuses may have been valid too, but of no consequence if ya don't even have enough money on the table. Add it all up and it looks like the entire take-private initiative was an impulsive brain-fart. Not fully thought through at any level, which it wasn't, since he seemed to be brainstorming the terms and what it would mean for existing shareholders literally as he was tweeting back and forth with twitter followers.

 

[Barklikeadog]

What was the issue then?

Where in the blog post does it say this? What we know is that the Saudis dropped out (hence funding not initially secured) and then you have this statement below:

"a number of institutional shareholders have explained that they have internal compliance issues that limit how much they can invest in a private company."

This tries to put a positive spin on the fact that Goldman and Silver Lake did not agree to pony up enough money. The reasons why are irrelevant. The bottom line is he couldn't secure funding--not from the Saudis and not from anywhere else. He can claim he could have eventually done it, but by giving a host of other excuses it provided a face-saving measure for giving up. Those other excuses may have been valid too, but of no consequence if ya don't even have enough money on the table. Add it all up and it looks like the entire take-private initiative was an impulsive brain-fart. Not fully thought through at any level, which it wasn't, since he seemed to be brainstorming the terms and what it would mean for existing shareholders literally as he was tweeting back and forth with twitter followers.

Can you imagine explaining to the Saudis that the price is a marijuana joke? Maybe he will offer the sec 20 million in free supercharging before the new board can stop him.

 

[strangecosmos]

This tries to put a positive spin on the fact that Goldman and Silver Lake did not agree to pony up enough money. The reasons why are irrelevant. The bottom line is he couldn't secure funding--not from the Saudis and not from anywhere else.

Details here: WSJ reports Elon turned down $30B plan to take Tesla private

 

[EinSV]

The Tesla settlement docs are here:

https://assets.documentcloud.org/documents/4951969/SEC-vs-Tesla-Settlement.pdf

 

[strangecosmos]

The Tesla settlement docs are here:

https://assets.documentcloud.org/documents/4951969/SEC-vs-Tesla-Settlement.pdf

Thanks, super helpful! The wording is quite legalish. Here's the key part of the settlement. Tesla agrees to:

"implement mandatory procedures and controls to oversee all of Elon Musk's communications regarding the Company in any format, including, but not limited to, posts on social media (e.g., Twitter), the Company's website (e.g., the Company's blog), press releases, and investor calls, and to pre-approve any such written communications that contain, or reasonably could contain, information material to the Company or its shareholders."

So, Tesla will set up some sort of process to pre-approve all of Elon's written communications that "reasonably could contain" material information about Tesla. I think that could mean pre-approving all tweets, or allowing Elon to submit tweets for approval — whichever the company decides. But I'm not sure.

There is a mention of a "Securities Counsel", an SEC-approved "experienced securities lawyer", who will need to be hired by Tesla and who will "review communications made through Twitter and other social media by the Company's senior officers". It sounds like the Securities Counsel might be the person, or one of the people, who pre-approves Elon's written communications, but as I said the wording is quite legalish and I'm not sure.

Bottom line: Elon is not forbidden from tweeting. However, people may no longer get an instantaneous reply from him on Twitter, depending on the process Tesla puts in place.

 

[WarpedOne]

Bottom line is Tesla is becoming less different from VW.

No lipstick will make this pig look better.
Tesla is not tesla because its wonderfull board, it is what it is because of one single person.

That is being handcuffed.

 

[Garlan Garner]

Thanks, super helpful! The wording is quite legalish. Here's the key part of the settlement. Tesla agrees to:

"implement mandatory procedures and controls to oversee all of Elon Musk's communications regarding the Company in any format, including, but not limited to, posts on social media (e.g., Twitter), the Company's website (e.g., the Company's blog), press releases, and investor calls, and to pre-approve any such written communications that contain, or reasonably could contain, information material to the Company or its shareholders."

So, Tesla will set up some sort of process to pre-approve all of Elon's written communications that "reasonably could contain" material information about Tesla. I think that could mean pre-approving all tweets, or allowing Elon to submit tweets for approval — whichever the company decides. But I'm not sure.

There is a mention of a "Securities Counsel", an SEC-approved "experienced securities lawyer", who will need to be hired by Tesla and who will "review communications made through Twitter and other social media by the Company's senior officers". It sounds like the Securities Counsel might be the person, or one of the people, who pre-approves Elon's written communications, but as I said the wording is quite legalish and I'm not sure.

Bottom line: Elon is not forbidden from tweeting. However, people may no longer get an instantaneous reply from him on Twitter, depending on the process Tesla puts in place.

They are probably going to appoint a woman to the chairmanship....just like spaceX. I have absolutely no problem with gender or race or anything....however I have a huge problem with companies being forced to do anything outside of their objective or shareholders input.

California’s Publicly Held Corporations Will Have to Include Women on Their Boards

Its getting ridiculous.

Next its going to be mandatory to have at least 2 left handed people on the board that have a non receding hairline.​