The US financial regulator has sued Tesla chief executive Elon Musk for fraud, accusing the billionaire of making a series of “false and misleading” statements on Twitter.
The Securities and Exchange Commission (SEC) filed a lawsuit against Musk accusing him of securities fraud, after he tweeted about potentially “taking Tesla private” in August.
The SEC is seeking to bar Musk from acting as an officer or director of a publicly traded company, which would mean he would not be able to continue in his role as head of the the electric car company.
Musk has said he has done nothing wrong and said the lawsuit was “unjustified”.
He added: “Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
Tesla shares went into tailspin after the announcement, dropping 12% in after-hours trading. Nevertheless, Tesla’s board said they are “fully confident” in Musk.
In the lawsuit, which was filed on Thursday in federal court in New York, the regulator described Musk surprising members of his own team and investors with a series of tweets, beginning on 7 August.
Twelve minutes after that first tweet, Tesla’s head of investor relations texted Musk’s chief of staff to ask whether Musk’s announcement was “legit”, the SEC said.
The statements “created the misleading impression that taking Tesla private was subject only to Mr Musk choosing to do so and a shareholder vote”, according to the SEC.
“In truth and in fact Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,” it said.
The SEC lawsuit comes as Tesla has been struggling to deliver its new Model 3 sedan, which is key to the company’s future profitability, after a long series of production issues and delays.
Musk has long used Twitter to criticise short-sellers betting against his company, and already faced several investor lawsuits over the 7 August tweets, which caused Tesla’s share price to gyrate.
According to the SEC, Musk “knew or was reckless in not knowing” that his tweets about taking Tesla private at $420 a share were false and misleading, given that he had never discussed such a transaction with any funding source.
In its lawsuit, the SEC said Musk calculated the $420 price per share based on a 20% premium over that day’s closing share price and because of the number’s slang reference to marijuana.
The calculation he used resulted in a price of $419 but he rounded it up to $420 as he had recently learned about the number’s significance.
In the lawsuit, which cites emails and text messages between Musk and Tesla executives, Musk is quoted as saying he thought his girlfriend “would find it funny, which admittedly is not a great reason to pick a price”.
The move to bar Musk as an officer of any public company was a rare move for the SEC against the chief executive of such a well-known firm.
It remains to be seen whether Tesla could continue without Musk at its helm if the financial regulator succeeds in barring him.
“Elon is Tesla and Tesla is Elon and that’s great when Elon is scoring touchdowns and grand slams but not so great when there are negative things tied to him,” said Karl Brauer, executive publisher at car research firm Kelley Blue Book.
Musk is also being sued by a British diver who helped rescue youth football players trapped in a cave in Thailand after Musk accused him on Twitter of being a paedophile.