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Elon Musk in Seattle in 2015. (GeekWire Photo / Taylor Soper)

Elon Musk has agreed to step down as Tesla’s chairman for three years but will remain CEO of the electric car maker, under the terms of documents filed today to settle a securities fraud case brought by the Securities and Exchange Commission.

Musk will also pay a $20 million penalty to settle charges sparked by his Aug. 7 tweets about a plan to take Tesla private. Tesla will pay an additional $20 million, the SEC said in a news release.

In addition, Tesla agreed to appoint two new independent directors to its board, establish a new committee of independent directors and implement procedures to oversee Musk’s communications via Twitter and other avenues.

Neither Musk nor Tesla admitted wrongdoing as part of the agreement, according to court papers. But Musk will be required to comply with Tesla’s new procedures for social-media posts, updates on the company’s website and blog, and statements made in news releases or during investor calls.

Tesla would have to give “pre-approval of any such written communications that contain, or reasonably could contain, information material to the company or its shareholders,” according to court documents.

“As a result of the settlement, Elon Musk will no longer be chairman of Tesla, Tesla’s board will adopt important reforms — including an obligation to oversee Musk’s communications with investors — and both will pay financial penalties,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in the news release. “The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.”

Peikin’s fellow co-director, Stephanie Avakian, said the measures in the settlement “are specifically designed to address the misconduct at issue by strengthening Tesla’s corporate governance and oversight in order to protect investors.”

Neither Tesla nor Musk commented immediately on the settlement. Just a few hours before the SEC issued its announcement, Musk tweeted about Tesla’s efforts to ramp up deliveries of its Model 3 electric cars, but didn’t refer to the court case.

The settlement still requires approval from Manhattan federal district court, where the SEC filed its complaint on Thursday. (Update for 10:55 a.m. PT Oct. 18: U.S. District Judge Alison Nathan approved the deal in Manhattan on Oct. 16.)

The key claims in the case focus on a series of tweets that Musk sent out on Aug. 7, saying that funding had been secured for a plan to buy back Tesla’s publicly traded shares at a premium price of $420 and take the company private. The deal didn’t go through, however. By the end of August, Musk and Tesla’s board determined that their best course was to keep Tesla public.

The SEC alleged that Musk “knew that the potential transaction was uncertain and subject to numerous contingencies,” and cited “significant market disruption” resulting from his statements.

“Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the possible transaction lacked an adequate basis in fact,” the SEC said in today’s news release.

The settlement is a surprise given Musk’s initial reaction to the SEC charges. He appeared to signal on Thursday that he was ready for a legal battle.

“This unjustified action by the SEC leaves me deeply saddened and disappointed,” Musk said at the time. “I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way.”

Tesla’s stock slumped nearly 14 percent on Friday, closing the trading week at $264.77. As painful as it is, settlement of the SEC case, coupled with what’s expected to be a strong quarter for Model 3 deliveries, could conceivably improve Tesla’s market fortunes.

Here are the key documents filed today in Manhattan federal court.

CONSENT OF DEFENDANT ELON MUSK by Todd Bishop on Scribd

FINAL JUDGMENT AS TO DEFENDANT ELON MUSK by Todd Bishop on Scribd

UPDATE: Here are additional settlement documents related to Tesla specifically.

Consent of Defendant Tesla … by on Scribd

Final Judgment as to Defendant Tesla, Inc. by Todd Bishop on Scribd

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