SEC moves to close Musk-Tesla Fair Fund

The US Securities and Exchange Commission has asked a federal judge in Manhattan to close the Fair Fund created from civil fines paid by Elon Musk and Tesla after completing all distributions to investors. The Fair Fund was established with $40 million in penalties, following the settlement of a civil securities fraud case tied to Musk’s 2018 statements about potentially taking Tesla private.

A claims administrator has finished paying out the fund, prompting the SEC to seek formal closure of the structure. The regulator stated that “distribution of the Fair Fund is now complete,” marking the end of the compensation process for affected Tesla shareholders.

From the $40 million fund, $41.53 million, including interest and net of fees, was distributed to 3,350 eligible claimants who had losses linked to the 2018 events. These investors received 51.7% of their approved claims because overall losses exceeded the size of the Fair Fund.

Another 3,046 claims submitted to the fund were rejected. Approximately $449,000 remains unallocated in the Fair Fund and will be transferred to the US Treasury once the court formally closes the fund.

The Fair Fund originated from a 2018 settlement resolving the SEC’s first civil enforcement case against Elon Musk. The regulator had charged Musk with securities fraud over August 7, 2018 Twitter posts in which he said he had “funding secured” to potentially take Tesla private.

Those posts caused Tesla’s share price and trading volume to spike, with the stock closing more than 6% higher than when Musk began posting. The shares later declined after it became clear that Musk had not arranged the necessary financing for a going-private transaction.

To resolve the case, Musk and Tesla each paid a $20 million civil fine, with the money earmarked for investor victims. Neither Musk nor Tesla admitted wrongdoing in the settlement. As part of the agreement, Musk relinquished his role as Tesla’s chairman and accepted that Tesla lawyers would review certain of his Twitter posts in advance.

The winding down of the Fair Fund is separate from another SEC matter involving Musk’s trading in Twitter shares in 2022. In that case, the SEC alleged Musk waited 11 days too long in March and April 2022 to disclose his early purchases of Twitter stock.

Musk resolved the disclosure case by having a trust in his name pay $1.5 million, again without admitting any wrongdoing. A federal judge approved that settlement in July while expressing “significant misgivings” about whether the resolution treated Musk too leniently.