The car firm and Mr Musk will pay $20 million each, with the CEO holding onto his position but giving up his seat as Tesla chairman for at least three years.
It comes after a fallout over the business magnate’s tweet in August which suggested he would take the electric car company private. The company is not going private.
The Securities and Exchange Commission argued the social media post was misleading and harmed investors who bought stock in the company as a result.
Tesla must hire an independent chairman to oversee the company, which should please a number of shareholders who have criticised Tesla’s board for being too beholden to Mr Musk.
Mr Musk and Tesla reached their settlement without admitting to or denying the SEC’s allegations, it was reported earlier.
The resolution “is in the best interests of our markets and our investors, including the shareholders of Tesla,” SEC Chairman Jay Clayton said in a statement at the time.
Among those to criticise the Tesla boss, who is also the chief of private space firm SpaceX, was fellow entrepreneur Richard Branson.
The Virgin founder said Mr Musk should “get some sleep” and “learn the art of delegation”.
He was asked by CNBC’s Nancy Hungerford: “If Elon Musk were to call you up, what advice would you give him?”
Sir Richard replied: “Don’t feel you have to put out tweets about public shareholders, leave the public game to people who enjoy that. He obviously doesn’t enjoy it, so (he should) clear the decks and concentrate on the creative side”.
Agencies contributed to this report.
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