Tesla to pay fine, Musk to give up chairmanship

US carmaker Tesla and its founder have agreed to pay a 40-million-dollar fine and have Elon Muskstep down as chairman for misleading tweets about stock prices, in a deal announced by the Securities and Exchange Commission Saturday.

The probe was started after Musk tweeted on August 7 that he was “considering taking Tesla private at $420. Funding secured.”

“In truth, Musk knew that the potential transaction was uncertain and subject to numerous contingencies,” wrote the SEC Saturday, after it had filed fraud charges earlier this week. It noted that the tweets caused significant market disruption.

Musk tweeted the claim as anger was rising among customers amid backlogs in production of the company’s much-anticipated Model 3. Taking the company private would have allowed Tesla to skip some reporting requirements and not be forced to react to market movements.

At the time, Tesla had lost more than 3 billion dollars during the previous three years, leaving some market participants to question the company’s profitability and financial sustainability.

The SEC noted that the tweet helped push Tesla’s share up by 6 per cent and that 420 dollars a share was “a substantial premium to its trading price at the time.” It also argued that the tweets implied the funding was secure and that the only uncertainty was a shareholder vote, none of which was accurate, it said.

Later in August, Musk said the company would stay public after all.

The problem, said the regulator, was that Musk had not discussed any specifics of any deal with any partners. Beyond that, the company had told markets in 2013 that Musk‘s Twitter feed would be a primary means for conveying corporate information, but had never set up controls to make sure the tweeted information complied with corporate reporting guidelines.

The company did not “have sufficient processes in place to [sic] that Musk’s tweets were accurate or complete,” wrote the SEC.

According to the SEC statement, neither Musk nor Tesla admit any wrongdoing. Under the deal, the new chairman of the board will be required to better supervise communications by Musk, who can remain as chief executive of the company.

Two independent directors will also be named to the board and Musk will be ineligible to be chairman for three years. Additionally, a new board committee will be set up to oversee Musk‘s communications.

Concerns have risen regarding Musk‘s tweeting of late. Aside from the stock buyback announcement, he has also landed in hot water for referring to a man who helped rescue a group of Thai boys trapped in a cave as a “pedo” after rescuers disparaged Musk‘s proposal of sending in a submarine to help the boys.

The 40-million-dollar fine will be split evenly between Tesla and Musk. The money is set to be distributed to investors who lost out in the incident.

“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.

Tesla did not respond immediately to media enquiries. Neither the company’s corporate website or Twitter account – nor Musk‘s Twitter account – referenced the deal.

The agreement is subject to court approval.