Tesla shares plunge as regulators launch fraud lawsuit against Elon Musk

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Tesla's share price tumbled 12% in after-hours trading after the announcement of the lawsuit, which could potentially see Musk landed with a substantial fine and even removed from his position as the head of Tesla - or any publicly traded organization.

The U.S. Securities and Exchange Commission (SEC) on Thursday accused Musk of tweeting false and misleading information in August about financing for his now-aborted plan to take the company private, and said it was seeking to remove him from his role.

Fund representatives expressed interest in taking Tesla private and asked about building a factory in the Middle East, Musk told the SEC. In its lawsuit, the SEC alleges he proposed the per-share valuation by assuming a 20-percent premium and rounding up to $420 "because he had recently learned about the number's significance in marijuana culture and thought his girlfriend 'would find it amusing, which admittedly is not a great reason to pick a price.'" Musk at the time was dating pop musician Grimes. He specifically said he would consider doing so at $420, adding that funding had already been secured.

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"In order for Tesla to raise money I think investors will want Musk to stay involved but have more controls in place".

According to the complaint, Musk met with representatives of a sovereign investment fund for 30 to 45 minutes on July 31 at Tesla's Fremont, California, factory.

Gordon Johnson, an analyst at Vertical Group who has been predicting a collapse in Tesla's shares for months, is less optimistic. But Musk also could agree to step down as CEO and instead take another title, such as chief production officer.

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Musk, in a statement issued by Tesla, called the SEC action unjustified.

"We are concerned that decreased confidence in Tesla on the part of investors may impact the company's ability to raise capital on amenable terms", Brinkman said. "Integrity is the most important value in my life and the facts will show I never compromised this in any way", he said. The department of justice too is now looming into Musk's tweets and could bring a criminal case if it finds he deliberately misled investors.

"Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company", the statement said.

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"It seemed like better karma at $420 than at $419", Musk said in an interview with the New York Times. Musk's nine-word tweet could be the most costly mistake he has ever made.

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