UK Markets close in 5 hrs 9 mins

Elon Musk forced to resign as Tesla chairman and pay $20 million fine as part of government lawsuit settlement

Henry Austin

Elon Musk will be forced relinquish his role as chairman of his Tesla electric car company as part of a series of concessions to settle a government lawsuit alleging that he duped investors with misleading statements about a proposed buyout of the firm.

Both the billionaire and the company will also pay $20m (£15m) to resolve the case.

The Securities and Exchange Commission announced the settlement just two days after filing a case seeking to oust Mr Musk as chief executive officer (CEO), which he will not have to do as part of the settlement.

However, he will be required to relinquish his role as chairman for at least three years.

Mr Musk tweeted in August that he was considering taking Tesla private and that he had secured funding to do so once shares had reached $420 (£322) a share. The company ended June with $2.2bn in cash.

He subsequently backtracked, insisting that he had been discussing funding with the Saudi Arabian sovereign wealth fund and felt he could confidently say he could secure funding at that stock price.

However, his comments prompted the US Securities and Exchange Commission (SEC) to file a lawsuit against Mr Musk, which accused him of fraud and sought to ban him as an officer of a public company.

Filed earlier this week in the US Southern District court in New York, it said that Mr Musk made a “series of false and misleading statements” about his plans to take the company private.

“Musk using his mobile phone, published a tweet, ‘Am considering taking Tesla private at $420. Funding secured’,” the SEC complaint read. ”Musk published this tweet in the middle of the day’s official market trading. Immediately after this tweet, the trading volume and price of Tesla shares spiked”.

Of the $420 price point, the complaint noted that Mr Musk “had recently learned about the number’s significance in marijuana culture and thought his girlfriend ‘would find it funny’”.

The complaint added that Mr Musk tweeted his statement without consulting other Tesla executives about the potential privatisation. The head of Tesla’s investor relations even sent a text to Mr Musk’s chief of staff asking if the message was legitimate, it said.

Stephanie Avakian, co-director of enforcement at the SEC, later told a news conference: “Neither celebrity status nor reputation as a technological innovator provides an exemption from federal securities laws.”

Tesla’s stock plummeted 14 per cent after the lawsuit was filed, wiping off more than $7bn (£5.3bn) in shareholder wealth. Many analysts predicted the shares were bound to fall even further if Mr Musk was forced to step down.