If the CEO of Tesla, Elon Musk wishes to return as chairman, the shareholders will have to vote for it.
This requirement was detailed in a court brief that had been filed jointly by Tesla and the Securities and Exchange Commission on Thursday. This brief was needed by a federal judge who was supposed to approve a securities fraud settlement that happened with Musk and the company last month.
Musk and Tesla agreed to pay $20 million each and make the required concessions with the hope of settling an SEC lawsuit that alleged that Musk duped the investors with statements about a plan to take the company private. This settlement allows Musk to remain the CEO but requires him to relinquish his chairman role for the next three years atleast. Post this, a majority of shareholders will have to approve Musk’s return as a chairman to lead the company’s board.
US District Judge Alison Nathan said that the settlement was “fair and reasonable,” and this is considered as a common practice in the court. She hasn’t yet ruled on the agreements with Musk and Tesla. The SEC accused Musk of committing securities fraud that was because of Musk’s tweet on August 7th, where Musk tweeted that he had secured to take the company private at $420 per share, which was a huge premium over the stock price at that point in time. The commission alleged that Musk hadn’t really locked up the estimated $25 billion to $50 billion which was required to successfully fulfill the deal, and wanted to punish him by pushing him out as Tesla’s CEO.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
Initially, Musk rejected an SEC offer that was to settle the case. After 2 days post the fraud, Musk relented and agreed to resolve the matter and pay the penalty, step down from the position of chairman and to oversight his communications on company news. But this deal didn’t stop Musk from speaking out about other subjects, which included mocking the SEC. In the brief, no mention was made about Musk insulting the commission on Twitter which means Musk won’t face any punishment for his tweets.
Musk taunted the SEC just days after the September 29 settlement was announced, and called it the “Shortseller Enrichment Commission” and snidely praising it as “doing incredible work.” This tweet raged fire between Musk’s long-running feud with short sellers, who are a category of investors that bet on Tesla’s stock to fall. Chester Spatt, a finance professor at Carnegie Mellon University who was a former SEC economist, said- “The shareholder vote requirement basically indicates that the SEC is protecting the investors. It is a good reminder to the board that it is the stockholders that matter ultimately “. Spatt said that Musk’s insult to the SEC was because of his “bonehead” but that definitely didn’t violate securities laws. The tweet was just Musk exercising his free speech rights.
Musk has rarely been hesitant to give provocative statements to his 22 million odd followers on Twitter. He is currently seen defending himself against a defamation lawsuit which was filed by a diver who helped save 12 boys on a Thai soccer team from a flooded cave. Musk, in one of his infamous tweets, said that the diver was a pedophile and deleted the tweet.
Tesla has been ordered to monitor CEO Musk’s Twitter posts as a part of the settlement with the SEC, but the monitoring needs to be done only regarding news about the company. Tesla shares, on Thursday, closed down 1.8 percent at $252.23.