Tesla also faces $20 million fine, but Musk will stay on as CEO.
We knew Elon Musk would likely face repercussions for his infamous "funding secured" tweet when, much to the surprise of his company shareholders and 22 million Twitter followers, he abruptly announced plans to turn Tesla into a private company back in August.
Following investigations, the US Securities and Exchange Commission has concluded that Musk's Tweets were "false and misleading" and last week filed a lawsuit seeking to remove him as CEO of Tesla. However, an agreement between the parties has been reached.
A proposed settlement between Musk and the SEC would see the following happen: Musk and Tesla would each pay a $20 million fine for a total of $40 million and Musk would step down as Tesla chairman but would remain CEO. Furthermore, Musk must step down as chairman within 45 days and cannot be re-elected to the job for at least three years. Tesla must also appoint two new independent directors to its board. In return, neither Musk nor Tesla will have to admit or deny the SEC's findings. The settlement is now subject to court approval.
"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 to protect investors," Stephanie Avakian, co-director of the SEC's Enforcement Division, said in a statement.
The news comes just days before Tesla was expected to announce its third-quarter delivery figures, in what should have been a celebratory milestone after the automaker recently made a big push on Model 3 deliveries. The SEC's original lawsuit filed in the United States Southern District Court of New York says Musk "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." It goes on to say the executive indicated "funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote."
The lawsuit originally sought a "permanent injunction disgorgement, civil penalties, and a bar prohibiting Musk from serving as an officer or director of a public company." Unsurprisingly, Tesla's shares fell by 12 percent after the US regulator's actions. Now it makes sense why Musk and Tesla ultimately decided to agree to the settlement
"This unjustified action by the SEC leaves me deeply saddened and disappointed," Musk said in a statement prior to the settlement's announcement. "I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way."