Tesla shares plunge as regulators launch fraud lawsuit against Elon Musk

Elon Musk smoking weed on

Investors dumped stock in the electric auto maker after Musk was accused by United States authorities of falsely claiming in a tweet that he had secured funding to take the firm private. CEO over tweets may cost the carkmaker's shareholders close to $20 billion.

General Motors reclaimed its crown as the most-valuable American automaker on Friday after Tesla shares plunged more than 13% in the wake of the Securities and Exchange Commission's lawsuit against CEO Elon Musk.

The SEC is seeking civil penalties and an order blocking Musk from being an officer in a publicly traded company.

"Musk's statements, disseminated via Twitter, falsely indicated that, should he so choose, it was virtually certain that he could take Tesla private at a purchase price that reflected a substantial premium over Tesla stock's then-current share price, that funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote". Tesla shares are trading at $US269 a share - a full 11% below the Street's pre-lawsuit average price target of $US305. Tesla's CFO, general counsel and head of communications rushed to formulate a public statement with limited information.

Part of the blame lies with Tesla's deferential board, which ought to use the moment to recruit a backup to Mr. Musk to take the wheel. Short sellers notched $1.27 billion Thursday alone in paper profits, according to S3 Partners, which said Tesla recently regained the title of most-shorted USA stock.

That statement was "false and misleading", the SEC alleges, and was the first of a series of "materially false and misleading statements".

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Shares have fallen from almost $380 early last month to around $260 last night.

Without disputing the reference to cannabis, Musk was quick to criticize the SEC's decision to bring an enforcement action.

The prospect of having the fraud charges and Musk's potential departure hanging over Tesla led to an immediate 12 percent drop in the company's share prices today.

Gordon Johnson, an analyst at Vertical Group who has been predicting a collapse in Tesla's shares for months, is less optimistic. Tesla has identified the fund as Saudi Arabia's Public Investment Fund, which owns nearly 5 per cent of the company. Later in the month, Tesla announced that the go-private plan had been scrapped. I have always taken action in the best interests of truth, transparency and investors.

In a statement, Tesla's board of directors said it remained "fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful USA auto company in over a century".

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