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Musk settlement with SEC avoids need for business litigation

On Behalf of | Oct 4, 2018 | Business & Commercial Litigation

Electric cars are an environmentally-friendly mode of transportation that may one day be available to the average consumer. Tennessee residents may be familiar with the company Tesla and its chief executive officer, Elon Musk. Tesla produces electric cars, but the company is not without controversy.

Back in August, Musk stated on Twitter that funding was secured to privatize Tesla at $420 per share. However, the U.S. Securities and Exchange Commission determined that no such deal existed and therefore charged Musk with fraud. Specifically, it its lawsuit the SEC claimed Musk’s tweet was “false and misleading” and that it did not comply with SEC regulations.

Recently, though, a settlement has been reached between Musk and the SEC. Musk and Tesla will each pay a fine in the amount of $20 million, and for three years Musk will not be able to serve as a chairman of the company. However, Musk is permitted to stay on as the CEO of Tesla.

Musk claimed that the $420 price for shares was based on a standard premium for pending private transactions. However, it was reported by some sources that the $420 price tag was meant to impress his romantic partner in light of its meaning in marijuana culture.

The settlement prevented business litigation between Musk and the SEC that could have taken years to resolve. It is important that all companies comply with regulatory requirements. The failure to do so could lead to negative consequences for the business at issue and its officers. Fraud allegations can be especially serious. Therefore, companies who are facing business litigation under allegations that they committed fraud or breached regulatory requirements may want to try to pursue a settlement, perhaps through mediation or arbitration, rather than risk the chance of losing in a lawsuit.