On August 7th, 2018, Elon Musk had tweeted that he was considering of taking over Tesla Private. Musk had also mentioned that it would be a secure funding of $420.
Musk, usually takes it to Twitter in order to unveil new products, features, or updates on his various companies.
With regard to this tweet made by Musk, the Securities and Exchange Commission (SEC) had filed a complaint on the 28th of September, 2018.
More details regarding Musk and the complaint –
The filing from the Southern District of New York considered the tweet as “false and misleading”. They specifically said the following –
“Musk’s statements, disseminated via Twitter, falsely indicated that, should he so choose, it was virtually certain that he could take Tesla private at a purchase price that reflected a substantial premium over Tesla stock’s then-current share price, that funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote. In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source.”
The complaint also identifies the following three tweets apart from the main August 7th tweet. These are as mentioned by TechCrunch, which is as below –
- My hope is *all* current investors remain with Tesla even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla.
- Shareholders could either to [sic] sell at 420 or hold shares & go private.”
- Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.
Click the following link to download and view the complaint –SEC Complaint.
What was the final settlement?
According to the final settlement made on the 30th of September, the electric automaker company’s CEO, Musk would have to resign as the chairman of the company. He would have to resign within 45 days of the agreement. That is, it was filed on the Saturday, 29th September, 2018.
He would also have to pay a fine of $20 million. This is as per the settlement in accordance with the U.S Securities and Exchange Commission. Also, due to Musk’s actions, Tesla must now appoint an independent chairman. Along with that two independent directors, as well as a board committee, in order to control Musk’s communications.
The fine put forth by SEC, is basically for Musk failing to require disclosure controls and procedures relating to his tweets.
The good news for Tesla, is that Musk can still remain as the CEO of the company. But Musk cannot be re-elected as the chairman for the next 3 years.
But this could have been a massive fight as well as a great loss for the company. Hence, it seems like Tesla has in fact achieved a good settlement. Also, Musk doesn’t have to admit or deny the SEC’s allegations as part of the agreement.
Steven Peikin, who is the co-director of SEC’s Enforcement Division said the following in a statement – “The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.”
Although Musk described the fraud charges as an “unjustified action” that has left him “deeply saddened and disappointed.”
Tesla and the board later issued a joint statement supporting Musk.
Click here to download and view the final settlement – SEC Settlement.
Excerpts from the complaint and settlement –
“This case involves a series of false and misleading statements made by Elon Musk, the Chief Executive Officer of Tesla, Inc. (“Tesla”), on August 7, 2018, regarding taking Tesla, a publicly traded company, private. Musk’s statements, disseminated via Twitter, falsely indicated that, should he so choose, it was virtually certain that he could take Tesla private at a purchase price that reflected a substantial premium over Tesla stock’s then-current share price, that funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote. In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source.”
“Defendant shall comply with all of the undertakings set forth therein, including, but not limited to, the undertakings to:
(a) resign from his role as Chairman of the Board of Directors of Tesla, Inc. (“Chairman”) within forty-five (45) days of the filing of this Consent and agree not to seek reelection or to accept an appointment as Chairman for a period of three years thereafter. Upon request by Defendant, the Commission staff may grant in its sole discretion an extension to the deadline set forth above;
(b) comply with all mandatory procedures implemented by Tesla, Inc. (the “Company”) regarding (i) the oversight of communications relating to the Company made 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 (ii) the pre-approval of any such written communications that contain, or reasonably could contain, information material to the Company or its shareholders; and
(c) certify, in writing, compliance with undertaking (a) set forth above.”
Situation after the settlement –
Elon Musk, as evidently shown by the complaint, has stepped down as Tesla’s chairman. But within just a week of the settlement, Musk went back to Twitter once again. He made a sarcastic praise to the agency’s work.
He said the following on his Twitter handle on the 5th of October, 2018.
Luckily, SEC seems to have overlooked this particular tweet.
Regarding the fact about who would be the new chairman, speculations say that James Murdoch could be the new chairman for Tesla.
This week, The Financial Times is following up to say that yes, James Murdoch is, in fact, a front-runner –
“Two people briefed on the discussions said Mr Murdoch, who is currently a non-executive director of Tesla, was the lead candidate for the job, which is required by the SEC to be an independent chairman. Another person said external options were still being considered.
Mr Musk is also known to favour Antonio Gracias, Tesla’s lead independent director, but has been advised Mr Gracias may not be sufficiently independent because of his long-term involvement with Mr Musk’s companies. Mr Gracias’ firm, Valor Equity Partners, invested in Tesla in 2005, selling its shares in the company’s IPO in 2010. He also invested in SpaceX, Mr Musk’s rocket business.”
To this, Musk said that “This is incorrect.” Although we don’t know which of the information is correct. Also, it’s quite a well-known fact that Musk tends to deny true facts.
Hence, one could possibly just wait and watch for what’s in place for the Tesla company.