The suit, filed by the Securities and Exchange Commission in federal court in Manhattan, threatens to deal a severe blow to the Palo Alto, Calif., electric car maker. Its brand and Mr. Musk are closely intertwined, and analysts have said the company’s roughly $50 billion market value is driven by Wall Street’s appreciation for Mr. Musk’s vision and skill as an innovator.
Tesla wasn’t named in the suit as a defendant, but the SEC is seeking to bar Mr. Musk, Tesla’s largest shareholder and its top executive, from serving as an officer or director of any U.S. public company. Tesla shares, which have been under intense pressure amid questions about the firm’s financial strength and Mr. Musk’s behavior, tumbled 9.9% to $277 in after-hours trading Thursday on Nasdaq.
“This unjustified action by the SEC leaves me deeply saddened and disappointed,” Mr. Musk said in a statement. “I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
The case ranks as one of the highest-profile civil securities-fraud cases in years. Its filing less than two months after the Aug. 7 tweets by Mr. Musk also marks an unusually rapid turnaround by an agency that has been under fire for its perceived failure to promptly bring significant cases in the financial crisis and other episodes.
The SEC said that contrary to the statements he made in several Twitter messages on Aug. 7, Mr. Musk “knew that he had never discussed a going-private transaction at $420 per share with any potential funding source.” The agency said the statements and omissions of fact caused disruption to the market for Tesla shares—which rose more than 10% the day of the tweets—and harm to investors.
“It’s an easy case,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “He said in the tweet he had financing, and apparently he didn’t. … It’s about as straightforward as you can get.”
The claims against Mr. Musk cap a year of turmoil for the auto maker, whose market value rivals that of much-larger General Motors Co. despite the fact that Tesla hasn’t turned an annual profit.
As Tesla has struggled since starting production of its mass-market Model 3 sedan in July of last year, its limited cash supply has taken a hit, placing the company under increased scrutiny about whether Mr. Musk would need to raise additional funds.