Musk defends 'funding secured' tweet as he fights SEC lawsuit

Elon Musk Tesla factory

The Securities and Exchange Commission (SEC) is suing Tesla CEO Elon Musk for committing securities fraud and it looks like the outspoken executive was originally going to settle with the government.

In the court filing, the SEC claims that "Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions".

Some analysts said the SEC's action was the beginning of a legal battle with authorities, short-sellers and other investors over Musk's actions that could cost Tesla heavily.

It seems Elon's personal integrity is getting priority over millions of investors' stakes in Tesla as an ongoing case against the SEC will cast a very long shadow over Tesla stock for quite some time - possibly years if this thing drags out.

Tesla shares dropped 13% to $267.38, and have tumbled 29% since Musk's August 7 tweet saying he had financing arranged to take the company private at $420 a share.

He said: 'This unjustified action by the SEC leaves me deeply saddened and disappointed'. I have always taken action in the best interests of truth, transparency and investors.

The SEC claims Musk had not lined up backers and that he predicted the $420-per-share price based on a 20 per cent premium to the previous day's closing rate, because he thought this would be the typical uplift paid by a bidder taking a firm private. That's potentially crucial progress for a company that has been vague about when it'll be capable of building that many complete Model 3s, the first electric vehicle it's tried to mass-manufacture.

Steven Peikin, co-director of the SEC's enforcement division, said "corporate officers hold positions of trust in our markets and have important responsibilities to shareholders".

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Given that Tesla has mostly lost money throughout its history and has had trouble meeting its own production targets while burning through cash, the company's stock could be in danger of cratering without Musk's aura.

"Without a doubt we think [Musk leaving] would be a negative".

"Without him constantly putting out comments on Twitter to give investors the hope that one day they're going to get to where revenue and earnings to justify this valuation, the stock will come under tremendous pressure because people will be forced to focus on the fundamentals".

The Department of Justice is now investigating whether to file criminal charges as well.

Fears of the potential fallout caused Tesla stock to fall in early trading Friday, after it plummeted 15 percent after hours on Thursday.

The board also lacks a director who could take over for Musk, said investment adviser Cornerstone Capital's research chief, John Wilson. It's possible that Mr. Musk fights and wins this case. Tesla has not responded to the news about the proposed settlement with the SEC.

Hanging in the balance is Tesla, the $45 billion emblem of America's future in battery-powered cars.

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