The Securities and Exchange Commission accused Tesla CEO, Elon Musk, accused of securities fraud Thursday in a civil lawsuit accusing him of lying or misleading so recklessly when he tweeted he had "Guaranteed funds" to deprive the manufacturer of electric cars.

In doing so, the Wall Street regulatory agency set in motion a legal confrontation with huge stakes that could result in Musk's withdrawal from Tesla's leadership and cause serious financial damage to the company.

Although Musk claimed in a series of tweets on August 7 that he had reached a privatization deal with Tesla, he "did not even discuss, let alone confirm, any key terms of sale, including price, with a potential source of funding ". in a complaint filed in federal court in New York.

In addition to the financial penalties, the SEC is asking the federal court to prevent Musk from running a public company or sitting on the board of directors, which would require him to leave Tesla.

Such a result would be considered an overwhelming downfall for an innovator whose ambition is to revolutionize the automotive and energy industries.

"We claim that Musk's statements were false and misleading because they had no basis," said Stephanie Avakian, co-director of the SEC's Division of Enforcement, at a news conference on Thursday.

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Musk maintained that abundant funding was available to turn Tesla into a private entity, which he said would help Tesla focus on long-term growth. He said that Saudi Arabia's sovereign wealth fund had indeed offered to finance the transaction, although the fund did not confirm it.

"This unjustified SEC action leaves me deeply saddened and disappointed," Musk said in a statement on Thursday. "I have always acted in the best interests of truth, transparency and investors.I integrity is the most important value in my life and the facts will show that I have never compromised that in any way.

The SEC's accusations focus on a series of tweets in which Musk told his about 22 million followers on Twitter that he was considering a multi-billion dollar deal that would bring Tesla to $ 420 per share – a significant premium over the price.

Over the next three hours, Mr. Musk tweeted his hope that current Tesla investors would stay with the company even if it became private, but investors could sell or continue to hold their shares. He said investor support was confirmed.

His proposed price assumed a 20% premium on Tesla shares, plus "rounded up to $ 420 because of the importance of this figure in growing marijuana and his belief that his girlfriend would be amused". Steven Peikin, co-director of the SEC Division of Enforcement, said at the press conference after filing the court.

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Between Musk's first tweet and the market close on Aug. 7, Tesla shares rose more than 6 percent in volume, the suit said.

Stocks have since declined sharply in value. Thursday, after trading hours, when the lawsuit was filed, Tesla shares fell 11.8% to 271.52 dollars.

"Elon Musk and Tesla have always bypassed traditional operational standards and turned negative press," said Karl Brauer, executive editor of Autotrader and Kelley Blue Book, in an email. An SEC lawsuit to ban Musk from running Tesla, or any public company, is bad news both personally and professionally. "

Citing the initial market reaction, the SEC said that Musk's alleged false and misleading statements "caused significant confusion and disruption in the Tesla stock market and hurt investors."

The agency noted that Tesla insiders were confused about the statements and sent inquiries to reporters asking if the CEO was joking.

The company's investor relations officer sent a message to Musk's chief of staff asking him: "Was this text legitimate? "

As a sign of the main hurdles to an agreement that would involve Tesla in the private sector, the SEC's complaint cited a 6 August conversation between Musk and a private equity fund partner experienced in such deals. The executive's experience shows that the transaction structure envisioned by Musk was "unprecedented," according to the SEC's complaint.

In many of the SEC's major fraud cases, companies seek to resolve them without allowing federal courts to rule.

"In the worst case, there will be a settlement with some penalties in Elon Musk," said Trip Chowdhry, general manager of equity research at Global Equities Research, in an email.

Alma Angotti, a former SEC enforcement officer, currently chief risk and compliance manager at Navigant Consulting, said the case could actually result in Musk's withdrawal.

"If they can prove that he knew it was wrong and misleading, or if he was reckless, they have a very good record for securities fraud," he said. Angotti in an email.

On Thursday, it was not clear whether Musk was going to mount a fiery defense, seek an agreement or somewhere in between. But he is widely known by American companies for his combative style.

For Tesla, which is currently trying to accelerate the manufacture of its model 3 electric sedan, a future without Musk would raise serious questions about the direction of the company.

Despite pressure from many analysts, Musk has not retained the services of a COO to serve as a clear No.2 framework to improve Tesla's operations, including its manufacturing efficiency.

Contributor: Chris Woodyard

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