Elon Musk, Tesla’s chief executive, under pressure from his lawyers, company officials and investors, reached a deal with the Securities and Exchange Commission on Saturday to resolve a securities fraud case. The settlement will force Musk to step aside as chairman for three years and pay a $20 million fine.
The SEC announced the deal two days after it sued Musk in federal court for fraud and misleading investors over his post on Twitter last month that he had “funding secured” for a buyout of the electric-car company at $420 a share.
The deal will allow him to remain as chief executive.
It is not clear why Musk changed his mind. But people familiar with the situation said lawyers for Musk and the company moved to reopen the talks with the SEC on Friday.
Shares of Tesla have been hit hard since the SEC filed the lawsuit. On Friday, the stock dropped almost 14 percent.
The terms are slightly tougher than those that two people briefed on the talks said Musk had rejected Thursday, which called for a two-year bar on serving as chairman and a $10 million fine.
Tesla, which is also settling, will pay a $20 million penalty. The company was not charged with any fraud.
The company will add two independent directors and take steps to monitor Musk’s communications with investors. It will also create a permanent committee of independent directors to monitor disclosures and potential conflicts of interest.
Jay Clayton, the SEC chairman, said the settlement with Musk and Tesla sent a message that “when companies and corporate insiders make statements, they must act responsibly, including endeavoring to ensure the statements are not false or misleading.”
In settling, Musk neither admitted nor denied misleading investors under the civil fraud charge, which means he cannot later say he did nothing wrong.
The settlement with the SEC faulted Tesla for failing to make sure that information important to investors was disclosed in a proper and timely manner.
Musk had a good reason to reopen the settlement talks because the SEC, in suing him, had sought to bar him permanently from serving as a top executive or officer of Tesla or any other public company. Under the deal reached Saturday, he will not only remain as chief executive, but will also stay on as a board member, just not as chairman.
“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,” said Stephanie Avakian, co-director of the SEC’s enforcement division.
Musk, according to people familiar with the negotiations, had been concerned whether settling a civil fraud charge might affect the ability of Tesla and the other companies he runs, including SpaceX and Boring Co., to raise money from investors in private placements and the debt markets.
But a Tesla spokesman said the SEC had granted waivers to all of those companies so his settlement would not be held against them.
Waivers in such a situation are not uncommon, legal experts have said.
A Tesla spokesman said Musk, a billionaire, would be buying $20 million in Tesla stock. The amount of stock being bought by Musk matches the penalty the company has to pay under the settlement, which was filed in federal court in Manhattan.
The whipsaw events of the past few days followed a series of calamitous events at Tesla, many of them self-inflicted wounds caused by Musk and his tweet about going private.
The SEC reacted quickly after the Aug. 7 tweet, which caused an immediate surge in Tesla shares. Regulators served a subpoena on the company seeking information and moved to take testimony from Musk and others at the company, people familiar with the matter said.
Negotiations toward an initial settlement began about a week ago, after the SEC said it was planning to send an official notice to Musk and Tesla that it was considering filing an enforcement action, those briefed on the talks said. By their account, all the parties thought a deal had been reached by Wednesday evening, and the plan was for a settlement with Musk and Tesla to be announced Thursday.
Musk was said to have backed away from a settlement, in part, because he was concerned that he couldn’t later tell investors that he had not done nothing wrong. But the settlement Saturday requires him to do that.
In an “admit nor deny” settlement, a settling party cannot later disavow the terms of the settlement.
After Musk said rejected the deal Thursday, his lawyers had asked the SEC to wait a couple of days so they could talk him into it, but the regulators said no, said another person familiar with the matter but not authorized to speak publicly.
Once the SEC sued Musk, his lawyers continued to talk to him about moving forward with a settlement and eventually he agreed, this person said.
In the meantime, Musk had conversations with investors and Mark Cuban, an entrepreneur who has had his own battles with the SEC, and they gave him a sense of how difficult it is to fight one of these suits, even if he eventually won.
The parties worked much of Friday and Saturday to get a deal done.
The settlement clears a big headache for Tesla, but other problems remain.
The SEC is continuing to look into the company’s past claims about its production goals. And now with Musk agreeing to step down as chairman, Tesla’s board must decide who should replace him.