Telsa Inc. Chairman and Chief Executive Elon Musk turned down a settlement with the Securities and Exchange Commission before the SEC charged him with fraud Friday. Over the weekend, after Tesla’s stock plunged, Musk had a change of mind. But the SEC forced him to accept harsher terms than the original settlement.
That’s according to New York Times columnist James Stewart, a well-sourced veteran business reporter best known for his book “Den of Thieves,” a deep dive into insider trading scandals on Wall Street.
By Stewart’s account, Musk told his corporate board by phone he’d quit Tesla “on the spot” if directors insisted he take the original settlement, which required him to step aside as chairman. The board gave in, Stewart wrote, and Tesla lawyers withdrew the settlement.
After the SEC leveled fraud charges against Musk on Friday, board members issued a statement saying they were “fully confident in Elon, his integrity, and his leadership of the company.” Tesla’s stock dropped 13.9% on Friday.
By Sunday, Musk had changed his mind. The original settlement would have required Musk to give up his chairman’s post for two years; the deal Musk accepted boosts that to three. A $10-million fine was doubled to $20 million, and Tesla, as a company, was fined $20 million as well.
Charles Elson, a finance professor and corporate governance specialist at the University of Delaware, told the Los Angeles Times that “the reaction of the board when charges were announced … really was troubling. They’re not there to cheer him along, they’re there to protect the shareholders.”
The $20-million fine levied on the company “is a signal that the company itself didn’t properly oversee him,” Elson said.
The fraud charges stem from a Musk tweet Aug. 7 that said he had “funding secured” for a deal to take Tesla private at $420 a share. The SEC found no evidence to support that claim.
Musk has 45 days from Sunday to resign as chairman. His replacement is to be an independent director, according to the settlement. The company must also add two new independent directors to the board.