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Abu Dhabi, UAESaturday 20 October 2018

Elon Musk’s $40 million tweets do not cost Tesla much

The settlement is meant to limit harm to shareholders and reduce market disruption, according to the SEC

Tesla CEO and founder of the Boring Company, Elon Musk. AP
Tesla CEO and founder of the Boring Company, Elon Musk. AP

Elon Musk, who owns 20 per cent of Tesla stock worth $9 billion, will cede his role as chairman of the electric carmaker and pay a $20 million (Dh73.4m) fine to settle fraud charges over his claims about taking the company private, an outcome the US Securities and Exchange Commission (SEC) said is designed to limit harm to Tesla’s shareholders and the market.

“The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders,” Steven Peikin, co-director of the SEC’s Enforcement Division, said on Saturday.

Mr Musk will remain chief executive officer and on the company’s board, but must resign as chairman within 45 days and can’t be re-elected to the role for three years as part of the settlement reached on Saturday with the SEC. Tesla will also pay a $20m fine.

Market observers said the settlement is effectively a slap on the wrist for Mr Musk.

“Twenty million [dollars] is not going to change anything in the scope of Tesla and if the SEC thought he were guilty then they should have gone for a stronger fine with a bigger impact on Musk himself,” Nabil Al Rantisi, managing director of capital markets at Daman Investments, said to The National.

To put the figure into context, Mr Al Rantisi said, “short sellers made $1.3bn from this piece of news, which shows you that $20m is completely insignificant”.

On Friday, Tesla’s stock price plunged 14 per cent, cashing out short sellers - those betting against Tesla’s stock price - to the tune of $1.27bn on the heels of the SEC’s lawsuit.

The settlement reached between the SEC and Tesla, which is subject to court approval, will result in corporate governance changes and new rules put in place for Mr Musk’s social media presence. The billionaire's August 7 tweets claiming to have the funding in place to buy out stockholders at $420 a share launched the SEC's investigation and lawsuit.

The new rules “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.

Tesla, which hasn't made an annual profit in 15 years, is also mandated to appoint two new independent directors to its board and establish a new committee of independent directors. Neither Tesla nor Mr Musk had to admit wrongdoing under the settlement, which concluded two days after the regulator sued.

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Read more:

Fears for Musk's future sink Tesla shares

US regulators sue Elon Musk for fraud over Tesla tweets

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The other high-profile SEC lawsuit of a Silicon Valley giant in recent memory is of blood testing startup Theranos. Founder and CEO Elizabeth Holmes was charged in March with defrauding investors out of more than $700m and paid a $500,000 fine, gave up her voting control in the company and was banned from serving as an officer or director of a public company for a decade. The company shut down in September.

Unlike Theranos, Tesla's troubles are proving to be a speed bump.

“Tesla won’t go anywhere and the company still has a long way to go,” Mr Al Rantisi said.