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One tweet cost Elon Musk his chairman job at Tesla and led to a $40M fine

Tesla Semi Truck

Tesla co-founder and CEO Elon Musk has settled a lawsuit filed by the United States Securities and Exchange Commission (SEC). Though he admitted no wrong-doing, the billionaire agreed to pay a $20 million fine and step down as the company’s chairman for a three-year period for using his personal Twitter account to announce he had the funding secured to take Tesla private. The California-based automaker also agreed to make leadership reforms and pay a $20 million fine for not vetting the information Musk writes on Twitter.

The executive posted what could go down in history as the world’s most expensive tweet on August 7, 2018. The possibility of taking Tesla private at $420 a share turned the stock market on its head and immediately captured the attention of the SEC. The fraud charges brought against Musk on September 27 argued his tweet was unfounded — Tesla didn’t have the funding secured to go private — and pointed out the false information hurt investors by causing significant market disruption.

In the most significant part of the settlement, the SEC ordered Musk to step down as chairman of Tesla’s board of directors within 45 days. He will be replaced by an independent chairman appointed by the board; it’s too early to say who will fill that role. Musk will be allowed to run for chairman again in 2021, though the SEC holds the power to extend the length of the ban if it sees fit.

Tesla will also need to appoint two new independent directors to its board, and the SEC wants it to establish a new committee of independent directors. The $40 million fine collected from Musk and Tesla will be distributed to harmed investors under a court-approved process.

Interestingly, Twitter found itself near the center of the investigation. The SEC focused on how Musk has leveraged the platform to communicate with his 22.7 million-strong pool of followers that includes customers, fans, investors, rivals, and the press. In 2013, Tesla said the executive could use his personal account to make important product announcement — a right he has often exercised — but never instated a procedure to vet the information he posts. The SEC wants to change that, and it has asked Tesla to put in additional controls and procedures to oversee Musk’s communications.

“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,” concluded Stephanie Avakian, the co-director of the SEC’s Enforcement Division, in a statement.

The settlement isn’t as harsh as it could have been. The SEC initially wanted to push Musk out as Tesla CEO, too, but backed down when it realized the company’s stock price would collapse without the outspoken executive at the helm. The chaos nonetheless wiped about $7 billion from Tesla’s market value, placing it below General Motors, by sending its stock price on a 14-percent free fall. Musk’s legal troubles aren’t over yet, either. Several investors sued him over his misleading tweet and the settlement bolsters the credibility of their case.

Tesla hasn’t responded to the settlement. Stay tuned for more details on this developing story.

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