Elon Musk will give up his position as Tesla chairman, after the U.S. Securities and Exchange Commission (SEC) reached a settlement with the electric car maker.
The punishment originates back to a Twitter post earlier this year, in which Musk detailed his plans to take the company private “at $420” and claimed that he had “funding secured” for the move.
Tesla’s stock price jumped 6% following the claims, causing “significant market disruption” according to the SEC.
The tweet ultimately led the SEC to file a lawsuit claiming Musk had committed securities fraud as funding was not in fact secured at the time of the tweet.
The SEC also stated, “his statements about the possible transaction lacked an adequate basis of fact.”
Under the penalties, Musk will step down as Tesla’s chair and be replaced by a new independent chair.
He will not be able to be re-elected as chair for at least three years.
“This matter reaffirms an important principle embodied in our disclosure-based federal securities laws,” said SEC chairman, Jay Clayton.
“Specifically, when companies and corporate insiders make statements, they must act responsibly, including endeavoring to ensure the statements are not false or misleading and do not omit information a reasonable investor would consider important in making an investment decision.”
Tesla will also have to appoint two new independent directors to its board and establish a new committee of independent directors.
There are also two separate fines of $US20 million each to be paid – one by Musk himself and one by Tesla.
According to the SEC, Tesla must now “put in place additional controls and procedures to oversee Musk’s communications”.
Musk will retain his position as CEO of the company.
“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,” said Stephanie Avakian, co-Director of the SEC’s Enforcement Division.
The strict sanctions may in fact be a blessing in disguise for Tesla.
Tesla stocks plummeted 14% following the announcement from the SEC on Friday, only to bounce right back by 17.3% on Monday.
As a 22% shareholder in the company himself, Monday’s movements saw Musk finish the day $2.35 billion richer.