'Misleading' tweets cost Elon Musk, Tesla $20M each in SEC settlement

As part of a settlement with the Securities and Exchange Commission, Elon Musk and Tesla have each been ordered to pay $20 million for its role in misleading investors.

This quick resolution comes after the federal agency charged Musk with misleading investors for an August tweet where he claimed he had "funding secured" to take his company private, among other things in an interesting lawsuit. As part of the deal, Musk will remain Tesla's CEO but must step down from his role as chairman for at least he next three years.

To see the tweets that cost Musk $20 million, see below:

Am considering taking Tesla private at $420. Funding secured.
-- Elon Musk (@elonmusk) August 7, 2018

Shareholders could either to sell at 420 or hold shares & go private
-- Elon Musk (@elonmusk) August 7, 2018

In the lawsuit, the SEC revealed that Musk picked the $420 price point because "he had recently learned about the number's significance in marijuana culture and thought his girlfriend 'would find it funny, which admittedly is not a great reason to pick a price."

"Musk's statements, disseminated via Twitter, falsely indicated that, should he so choose, it was virtually certain that he could take Tesla private at a purchase price that reflected a substantial premium over Tesla stock's then-current share price, that funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote," the SEC's complaint from late last week reads.

"In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source."

The SEC says in a statement that Tesla was included in the settlement for "failing to have required disclosure controls and procedures relating to Musk's tweets."

Tesla is required to hire two new independent members to its board and create a committee to oversee Musk's communications as part of the settlement. The SEC says that while Tesla announced Musk's Twitter account would serve as a "means of announcing" news and information back in 2013, the company had no procedures to make sure his comments would contain information needed to be disclosing in filings.

"The total package of remedies and relief announced today are specifically designed to address the misconduct at issue by strengthening Tesla's corporate governance and oversight in order to protect investors," Stephanie Avakian, co-director of the SEC's enforcement division, said in the agency's news release.

Steven Peikin, the other director of the enforcement division, said that this settlement was drafted with Tesla's shareholders in mind with the goal to prevent further "disruption" and "harm."

After sending the tweets in early August, Tesla's stock price increased more than 6 percent and then by as much as 10 percent by the end of the day. The Associated Press reports Tesla's stock dropped 14 percent on Friday as a result of the charges against its CEO.

In its lawsuit filed with the U.S. District Court's Southern District of New York in Manhattan, the SEC also pointed to these tweets of Musk's for misleading investors:

Investor support is confirmed. Only reason why this is not certain is that it's contingent on a shareholder vote. https://t.co/bIH4Td5fED
-- Elon Musk (@elonmusk) August 7, 2018

My hope is *all* current investors remain with Tesla even if we're private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity's SpaceX investment.
-- Elon Musk (@elonmusk) August 7, 2018

"Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions," the SEC said of the Tesla CEO's tweets.

"When he made these statements, Musk knew that he had never discussed a going-private transaction at $420 per share with any potential funding source, had done nothing to investigate whether it would be possible for all current investors to remain with Tesla as a private company via a 'special purpose fund,' and had not confirmed support of Tesla's investors for a potential going- private transaction."