When the U.S. Securities and Exchange Commission sued Tesla CEO and chairman Elon Musk for securities fraud on Thursday, it marked the beginning of a "challenging period" for the tech billionaire and the company he founded, experts said.
Before the Securities and Exchange Commission (SEC) filed a lawsuit against Elon Musk for alleged fraud yesterday, the Tesla CEO reportedly turned down a settlement offer. It alleges investors were misled by Musk's claims that he'd worked out funding to take Tesla private at a premium of $420 a share, a number that Musk later conceded was meant to be a humorous marijuana reference, according to the SEC suit. Credit investors think that without Musk, Tesla would have a harder time tapping debt or equity markets.
The announcement caused the share price to spike and Musk later retracted his statement.
Things are not going too well for Elon Musk. They are also seeking to prohibit him from heading any other publicly traded firm in the future.
The SEC's lawsuit, filed in Manhattan federal court, caps a tumultuous two months set in motion on August 7 when Musk told his more than 22 million Twitter followers that he might take Tesla private at US$420 per share, with "funding secured". "This unjustified action by the SEC leaves me deeply saddened and disappointed", he said in a statement.
"His ego is so clearly tied to the company, so what would be best for Tesla's investors would be for him to realize the company is more important than his ego", Munster said.
Gordon Johnson, an analyst at Vertical Group who has been predicting a collapse in Tesla's shares for months, is less optimistic.
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Tesla shareholders may hope that the company ends up like Uber, whose co-founder, Travis Kalanick, left last summer.
There were bumps in the road, like when Musk snapped at analysts during a company conference call and when he attacked a British diver who had helped rescue children who were trapped in a cave in Thailand.
Mr. Musk's legal problems may now complicate Tesla's efforts to alleviate a potential cash crunch.
For its part, Tesla's board is standing behind Musk, declaring in a statement that it is "fully confident in Elon, his integrity, and his leadership of the company".
'The ball is in the Board's court now and it remains to be seen what will happen next, ' he said.
The SEC couldn't resist at minimum making an example of Musk. The company confirmed earlier this month said that the Department of Justice is carrying out its own criminal investigation.
News of the charges came after trading closed but Tesla shares plunged by 14pc when the markets opened Friday, dipping below $270 and wiping $6.2bn (£4.75bn) from the market value. But Musk has vowed to fight the charges.