Shares of Tesla (TSLA) spiked Monday after the SEC settled a lawsuit accusing the company’s founder and CEO Elon Musk of defrauding investors when he tweeted last month that he was considering taking the company private.
The stock was up 17.1% to $309.95 per share at 2:59 p.m. EDT. Shares of Tesla had plunged Thursday following the announcement that the SEC had sued Musk.
Musk and Tesla will each pay $20 million under the settlement, the SEC said in a statement Saturday. Under terms of the agreement, Musk also must give up his seat as chairman of the board of directors for at least three years. The electric car-making company must also appoint two new independent directors to its board, establish a new committee of independent directors and implement additional oversight of Musk’s future communications.
“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 in the statement.
The agreement allows Musk to stay on as CEO of the company that has struggled to meet manufacturing deadlines and slow cash burn. Tesla’s free cash flow in the second quarter totaled negative $739.5 million, bringing the company to a net loss of $717.5 million, the company reported in August. Some analysts had said that Musk’s departure would harm Tesla’s brand, fundraising abilities and stakeholders’ confidence if the company lost its key visionary. The original lawsuit had sought to remove him both as chairman and as CEO.
“Funding secured”
The SEC’s allegations were related to statements Musk had made in August on Twitter and on his company website claiming that he had “funding secured” to bring Tesla private. Musk said Aug. 7 in a company blog post that he was considering taking Tesla private at $420 per share, representing a 20% premium over the stock price following the company’s second-quarter earnings release. He concluded the post saying that the “proposal to go private would ultimately be finalized through a vote of our shareholders.”
The SEC wrote in its complaint that Musk’s Aug. 7 statements “created the misleading impression that certain terms of a transaction to take Tesla private had been determined when, in fact, they had not even been explored, and in some cases, proved to be impossible.”
In a follow-up company blog post issued Aug. 13, Musk explained that his assertion of having “funding secured” was based on multiple encounters he had with the Saudi Arabian sovereign wealth fund, where he felt there was “no question that a deal with the Saudi sovereign fund could be closed.” But the SEC wrote in its complaint that “Musk’s statements were premised on a long series of baseless assumptions and were contrary to facts that Musk knew.”
Under the terms of the settlement, Musk and Tesla neither admit nor deny the SEC’s allegations.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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