Tesla CEO Elon Musk rejected a settlement from the United States Securities and Exchange Commission (SEC) last week, sending shockwaves across the internet as the regulatory body responded by filing a lawsuit against the businessman that alleged fraud. According to the New York Times, Musk not only rejected the settlement under the premise of his moral compass but reportedly strongarmed Tesla’s board to stand behind him by threatening them with his imminent departure.
According to James B. Stewart (a lawyer, author, and columnist for the Times), Musk reportedly spoke with Tesla’s board by phone and threatened to “resign on the spot” if the board required he enters into the settlement. Furthermore, the report reads that he “demanded” the board publicly exalt his integrity.
The SEC has publicly recognized Musk’s importance to Tesla, and much like the late Steve Jobs was to Apple, Elon Musk is Tesla’s greatest asset. The Tesla community largely considers his presence at the automaker to be integral to its existence, many of whom were conflicted over the board’s decision to support Musk.
Tesla’s market cap drastically fell with the news of the SEC’s lawsuit against Musk last Thursday, showing that the CEO’s face-value to the company is, in fact, important to the fiscal wellbeing of the automaker. By Friday, the company’s shares had dipped nearly 14 percent and were volatile, creating a favorable acquisition period for short-sellers. This is said to have opened a situation where Musk reluctantly agreed to allow Tesla’s lawyers to reach out to the SEC on his behalf to ask for a second chance at the deal.
Musk chose to accept the terms of a new settlement only two days after the SEC filed suit, this agreement being harsher than the first. Under the new terms, Musk would be required to step down as board chairman for three years, as opposed to an original two years, and his fine was doubled from $10 million to $20 million, or around 0.1 percent of the CEO’s net worth. A separate fine was then instituted for Tesla under a different agreement for a reciprocal amount and a condition that the company must adequately control what the CEO publicizes on social media, specifically calling out Twitter by name.
Along with stepping down as board chairman no later than 45 days after the settlement (mid-November), Tesla must also hire two independent directors within 90 days to dampen Musk’s influence on the company, a move which historically has not had a large influence in the way other companies operate, as these types of directors often work under the fear of dismissal should they cross the public figurehead. According to Fox News, a Tesla spokesperson would not deny that Musk would have influence in selecting the chairman and independent directors.
The SEC’s initial lawsuit alleged that Musk’s Tweet stating that he had secured funding to take Tesla private at $420 per share was akin to defrauding investors. Fortunately for the CEO, the SEC settlement carries only civil penalties.
Musk’s brilliance seems to be coupled with a slew of decisions that although have earned him celebrity status with his own subset of fans, led to temporarily diminishing over $7.8 billion of Tesla’s market cap in two days. Though the stock has since recovered from the fiasco, the concern over the unintended implications has created dismay in some shareholders and the regulatory body that oversees the market.
Tesla did not immediately respond to The Drive’s request for comment after hours.