Tesla CEO Elon Musk took a hard slap on his wrist as he agreed to step down as Tesla Chairman, pay $20 million fine and also have his communications monitored. The deal to settle charges brought by the SEC clearly sets a new beginning for Tesla because in 45 days Tesla will have a new chairman overseeing Tesla’s board.
Important Settlement Details
As part of the agreement that was filed Saturday, Elon Musk will resign as chairman of the Tesla board within 45 days. Musk will not be able to seek reelection or be appointed as chairman for three years.
Elon Musk will pay $20 million fine. Tesla will pay another $20 million in penalties for failing to incorporate requisite disclosure controls and procedures.
Tesla will appoint two independent directors to the board and set up a new committee of directors to oversee Elon Musk’s communications.
Elon Musk’s actions on Twitter has been a double-edged sword. Though it has allowed the CEO to keep his direct line of communications open with the masses, his impulsive tweets have certainly brought a lot of heartbreak of investors and Tesla fans alike. So far the cons have outweighed the pros and that could end very soon, thanks to the SEC.
After calling Vern Unsworth, a British diver who was part of the team that rescued 12 boys and their soccer coach trapped in a flooded cave in Thailand, “pedo guy”, Musk had to backtrack and apologize.
Elon Musk wrote, “My words were spoken in anger after Mr. Unsworth said several untruths & suggested I engage in a sexual act with the mini-sub, which had been built as an act of kindness & according to specifications from the dive team leader.”
A week after the Unsworth saga, Musk was at it again, this time posting a picture of Miley Cyrus twerking at the 2013 MTV Music Awards. Elon was responding to a Twitter user who wanted to know if he had called Montana Skeptic, a well known Tesla critic who penned several Tesla critical pieces on SeekingAlpha.
Musk received a lot of flak for the unflattering picture which forced him to delete the tweet.
A week later, on August 7th, Elon Musk tweeted that “Am considering taking Tesla private at $420. Funding secured.”
Though it has been well established that Elon Musk was harboring thoughts about taking Tesla private, the “funding secured” part of the tweet, did require due diligence before reaching investors, a process Elon Musk clearly overlooked, sending Tesla investors on a rough and bumpy ride for the last few months.
The Blessing in Disguise
According to the settlement, Tesla must “implement mandatory procedures and controls to oversee all of Elon Musk’s communications regarding the company in any format.”
Tesla board has been mandated to set up an SEC-approved permanent committee to monitor Elon’s communications with investors. This will certainly bring the much-needed control over Elon’s posts on Social Media.
The odds of Elon getting into late night discussions about Thailand cave diver or getting into a fight with Tesla Shorts on Twitter is now close to zero. If there was a monitoring process, musk’s “funding secured” tweet would have never slipped through before Tesla and Elon Musk had enough time for due diligence. A process that would have clearly avoided the heartache lot of Tesla investors and shorts were forced to go through.
Musk could have easily lined up the bankers, secured investor proposals, fixed a price and then broken the news. Because that’s the advice he would have got, if he had his communications monitored. Losing Tesla chairman’s post for the next three years will certainly make Elon stay cautious.
In an email obtained by CNBC (Friday, September 28), Musk asked Tesla employees to “ignore the distractions”. But a lot of those distractions has been brought to their table by none other than Elon Musk himself.
Tesla has fought its way through to increase production from building less than 1000 Model 3’s per week by the last week of December 2017 to more than 5000 Model 3s by the end of June.
Instead of discussing how high or low the production would go in the third quarter, how much cash flow the company will generate and keeping their focus on Tesla’s profitability, investors and the market was forced to talk about Elon Musk’s tweets –
Will Tesla go private or not, will retail investors be able to stay invested in private Tesla or not, is $420 per share valuation good enough or not.
The decision to backtrack from privatization, the SEC and DOJ investigation, will Elon Musk be forced to quit and the future of Tesla without Elon Musk.
Questions that were forced on investors.
It was pure drama. Sheer distraction from the fundamentals and production ramp. Things that could have been easily avoided. Unfortunately, the late night tweets kept coming. But the odds of it continuing is now very slim.
Ross Gerber, CEO and President of Gerber Kawasaki, told CNBC that SEC’s fine will provide a growing up moment for Elon Musk and Tesla.