Elon Musk out as Tesla chair, in $40m fraud settlement

Elon Musk out as Tesla chair, in $40m fraud settlement

UPDATED Elon Musk is to step down as chairman of electric car maker Tesla after agreeing a deal with the US Securities and Exchange Commission (SEC) to settle the fraud lawsuit against him.

The SEC initiated legal action against the billionaire entrepreneur on 27 September for making “false and misleading” statements in August about taking Tesla private.

Under the deal, Musk has been fined $20 million but will remain CEO of the company. Tesla will pay a separate fine of $20 million.

The monies will be distributed to investors affected by Musk’s tweet on 7 August and his subsequent statements about the claimed deal with Saudi Arabia’s sovereign investment fund.

According to the SEC, Musk agreed the settlement without admitting or denying the charges.

Steven Peikin, co-director of the SEC’s enforcement division, explained that the swift resolution is “intended to prevent further market disruption and harm to Tesla’s shareholders”.

Tesla will appoint two new directors to the board and – in a move that will relieve many – put additional controls in place to oversee Musk’s communications.

How we got here

On 7 August, Musk shocked Wall Street when he took to Twitter to announce that he was considering  taking Tesla off the stock market, suggesting that funding was “fully secured” for the deal, at $420 a share.

At this stage, it was conceivable the tweet was intended as a joke, as ‘420’ is code for the consumption of marijuana – a fact acknowledged in an extraordinary SEC filing:-

“According to Musk, he calculated the $420 price per share based on a 20 percent premium over that day’s closing share price because he thought 20 percent was a ‘standard premium’ in going-private transactions.

“This calculation resulted in a price of $419, and Musk stated that […] he rounded the price up to $420 because he had recently learned about the number’s significance in marijuana culture and thought his girlfriend [US musician Grimes – Ed] ‘would find it funny, which admittedly is not a great reason to pick a price’.”

An update from Musk on 13 August claimed that the money to take Tesla private would come from Saudi Arabia’s Public Investment Fund (PIF), after two years of private discussions.

However, 17 days after the infamous tweet, Musk announced that Tesla would remain public. But the damage had been done: investors were up in arms and litigation was brewing.

To rub salt into Musk’s self-inflicted wounds, the Saudi fund subsequently made a $1 billion investment in Californian electric vehicle maker – and Tesla challenger – Lucid Motors.

That funding, announced on 18 September, will enable Lucid to complete development and testing of its first vehicle, the Lucid Air, construct a $700 million factory in Casa Grande, Arizona, and begin rolling out its North America retail strategy, before beginning mass production in 2020.

Clearly, the PIF had intended to make a bet on the emerging future of electric, autonomous transport. But it may be that Musk’s actions left the fund’s managers with a simple choice: back his version of events and be dragged into litigation, or back out and invest the money elsewhere.

Either way, they were doubtless unimpressed by being caught up in Musk’s social media whirlwind.

Plus: Tesla on cusp of profitability, claims Musk

A matter of hours after reaching settlement with the SEC, Musk emailed Tesla’s employees to say that the company was on the cusp of turning a profit for the first time in 15 years.

“We are very close to achieving profitability and proving the naysayers wrong, but, to be certain, we must execute really well tomorrow (Sunday) [30 September, the last day of Q3 – Ed],” he wrote.  “If we go all out tomorrow, we will achieve an epic victory beyond all expectations.”

Internet of Business says

Despite the swift resolution to the securities fraud case – and Musk’s ability to offer it – his personal brand remains damaged by the affair, which has revealed him to be reckless and immature as much as driven and visionary.

To ram home the point, on 4 October, Musk began trolling the SEC, with a tweet saying, “Just want to that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!”

He later apologised – but only for the typo (missing out the word ‘say’ in his tweet). Any hopes that Musk would be stepping away from the social platform that he has used to undermine his own brand and credibility have proved remarkably short lived.

While a 28 September tweet from Musk to his 22 million followers showed the Tesla roadster in space with the words ‘Don’t panic’ onscreen, the reality is he has blown a hole in the company’s finances worth a dollar for each of them. Worse, Tesla now has a viable competitor in Lucid, backed by $1 billion of Saudi cash.

All for a tweet designed to amuse his girlfriend. A classic case of ‘founder syndrome‘, perhaps.

In a torrid, self-defeating year for the CEO, Musk is also being sued for defamation by British diver Vernon Unsworth, for repeated – and apparently groundless – allegations about his sexual conduct. Unsworth was involved in the rescue of 14 trapped boys in a Thai cave, a story that gripped the world in July.

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