Tesla shares plunge 12% after regulators sue Elon Musk for alleged securities fraud

Electric carmaker’s stock crashes from $308 at Thursday’s close to $270 within moments of the opening bell

Tesla’s share price dropped 12 per cent on Friday morning immediately after Wall Street opened as investors feared for the future of the company if Elon Musk were to be removed as chief executive.

The electric carmaker’s share price crashed from $308 (£236) at Thursday’s close to $270 within moments of the opening bell after news that US regulators were suing Mr Musk over alleged securities fraud.

The US Securities and Exchange Commission (SEC) said on Thursday it was seeking to remove Mr Musk from Tesla’s board because of “false and misleading” tweets about potentially taking the company private.

Mr Musk tweeted in August that he was considering taking Tesla private, and that he had secured funding to do so at $420 a share, sending the stock soaring.

Since that tweet, Mr Musk has backtracked, and said that he had been discussing funding to take the company private with the Saudi Arabian sovereign wealth fund, and felt he could confidently say he could secure funding at that stock price.

One investor branded him “a liar willing to do anything” to keep Tesla’s share price high.

Bill Smith, president and chief information officer at Blaine Capital, which is betting that Tesla’s share price will fall (short-selling), predicted that the legal action against Mr Musk was “just the beginning”.

“One of the most difficult things about being short is, Musk is a liar, he is willing to do or say anything at any time to keep that stock elevated,” Mr Smith said in an interview on CNBC.

Mr Musk has described the regulator’s action as “unjustified”, and said he acted 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,” he said in a statement.

Misleading stock markets is a serious charge to level at a company director as it can result in huge losses for investors. If the SEC’s allegations are proven, Mr Musk’s conduct would amount to securities fraud and could result in him being removed from the company’s board.

So central is Mr Musk to Tesla that his ouster would threaten the very future of the company, Mr Smith said, predicting that Tesla would have to file for bankruptcy without its enigmatic chief executive at the helm.

The SEC suit says: “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.”