The SEC has just launched the nuclear on Elon Musk. Here's what happens next

Elon Musk is the heart and soul of Tesla. If the SEC succeeds, he could withdraw.

The SEC filed a lawsuit on Thursday accusing Musk of making "false and misleading" statements about a plan to remove Tesla.

The real shock is that the SEC wants a judge to prevent Musk, the company's president and chief executive officer, from acting as an officer or director of a public company.

"It's a nuclear threat to force him to settle," said John Coffee, a professor at Columbia Law School.

The news shook Wall Street. You're here (TSLA) stocks fell 12% after trading.

"Tesla without Elon Musk is worth a substantial fraction less," said Coffee. "The punishment really lies with the shareholders of Tesla Who will run this company?"

Musk is defended, calling the SEC trial an "unjustified action" that leaves him "deeply saddened and disappointed". The CEO said he has always acted "in the best interests of truth, transparency and investors".

Very.

The agency has chosen to charge Musk under Rule 10b-5 of the Exchange Act. This is what the SEC uses to go out and meet internal traders and market manipulators.

"It's a very serious charge," said Thomas Gorman, a partner at Dorsey & Whitney and a former SEC staffer.

Coffee said that in theory, a judge could ban Musk from a "lifetime ban", which permanently prevented him from being a director or administrator. Although the SEC has not asked for specific time, it usually requires less than a lifetime ban.

The settlement that Martha Stewart entered into in 2006 with the SEC on insider trading has prohibited her from performing the duties of CEO or CFO of a public company for five years.

The SEC clearly wanted to use this highly publicized case to argue its point of view: corporate executives can not make statements that care little about their accuracy.

"The SEC has already achieved its goal of making headlines, and they understand it," said Randall LaSalle, a professor at the John Jay College of Criminal Justice.

Generally, these issues are resolved in a regulation. It is unusual that the litigation has not been resolved before the SEC trial.

"Most of the defendants are trying to settle as quickly as possible, but Mr. Musk has never been a perfectly rational actor," Coffee said.

Although Musk may now want to settle, the litigation can take weeks or even months.

This could pose problems for Tesla, who is riddled with debt. The company says it does not need to raise funds, but Tesla analysts say the company will soon have to raise funds to pay down its debt and invest in its business. Investors may be reluctant to lend more money to Tesla when its CEO is in abeyance and senior executives come out.

Charles Whitehead, a professor at Cornell Law School, said it was possible for Musk to reach an agreement allowing him to play a lesser role but stay in business.

"Why would the SEC want to hurt the company more than the tweet itself?" Whitehead said. "It would be like throwing the baby out with the bath water."

CNNMoney (New York) First published on September 27, 2018: 8:42 ET