Send this page to someone via email

Tesla CEO Elon Musk has agreed to pay $20 million and to step down as chairman of the electric car company to settle a dispute with the U.S. Securities and Exchange Commission (SEC).

READ MORE: Government regulators file action to get Elon Musk removed from Tesla

The SEC, a U.S. government regulatory agency designed to protect investors, announced the settlement in a statement Saturday.

The settlement relates to a securities fraud charge brought by the SEC against Musk on Thursday.

The charge relates to Musk’s tweet on August 7 that he was considering taking Tesla private at $420 per share.

WATCH: Tesla stocks plummet after government regulators file action to remove Elon Musk from Tesla

1:34 Tesla stocks plummet after government regulators file action to remove Elon Musk from Tesla Tesla stocks plummet after government regulators file action to remove Elon Musk from Tesla

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

Story continues below advertisement

SEC asserts that his statements about the possible transaction had no basis in fact, and said the market chaos that ensued hurt investors in a statement.

“Musk’s misleading tweets caused Tesla’s stock price to jump to over six per cent on August 7, and led to significant market disruption,” the statement read.

READ MORE: Government regulators file action to get Elon Musk removed from Tesla

The SEC also charged Tesla with failing to have required disclosure controls and procedures for Musk’s tweets. The SEC said the company had no way to determine if his tweets contained information that must be disclosed in corporate filings, or if they contained complete and accurate information.

Musk abandoned his idea to take Tesla private weeks after proposing it.

SEC says that Musk chose the $420 price to impress his girlfriend, Montreal musician Grimes. The term “420” is commonly used to refer to marijuana.

WATCH: Elon Musk smokes weed on live web show with comedian Joe Rogan

0:37 Elon Musk smokes weed on live web show with comedian Joe Rogan Elon Musk smokes weed on live web show with comedian Joe Rogan

Musk and Tesla have agreed to settle the charges against them, but have not admitted or denied the SEC’s allegations. Musk will remain as Tesla’s CEO.

Story continues below advertisement

The settlement requires that Musk step down as Tesla’s chairman within 45 days, and will be ineligible to be re-elected chairman for three years. Musk and Tesla must also pay $20 million each, for $40 million total in penalties. The SEC says it will be distributed to harmed investors under a “court-approved process.”

Tesla must also appoint an independent chairman, two independent directors and a board committee to set controls over Musk’s communications under the proposed agreement.

The settlement is a pull-back from the SEC’s original demand that Musk be barred from running Tesla, a sanction many investors said would be disastrous for the company.

Thursday’s charges shaved about $7 billion off high-flying Tesla, knocking its market value to $45.2 billion on Friday, below General Motors Co’s $47.5 billion.

-With files from Reuters