Elon Musk branded ‘a liar’ who will do anything to boost Tesla’s share price

Investors react to news US regulator is suing the chief executive after tweet claiming he had secured funding to take electric car company private

Elon Musk has been branded ‘a liar’ willing to do anything to keep Tesla’s share price high after US regulators filed a lawsuit seeking to oust the electric carmaker’s chief executive.

The angry reaction from an investor came after the Securities and Exchange Commission (SEC) accused Mr Musk of misleading the markets with a tweet stating he had secured investment to take Tesla private at $420 (£322) a share, sending the share price soaring. The regulator says this claim was untrue.

Mr Musk has described the regulator's action as “unjustified” saying 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.

Reacting to the news, Bill Smith, president and CIO 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.

Misleading stock markets is a serious charge to level at a company director as it can result in huge losses for investors. If proven, Mr Musk's conduct would amount to securities fraud and could result in Mr Musk being removed from the board of the company with which he has become synonymous.

That would threaten the very future of the company, Mr Smith said, predicting that Tesla would have to file for bankruptcy without Mr Musk at the helm.

Ross Gerber, president and chief executive of wealth manager Gerber Kawasaki said Tesla would be a “fundamentally different company that is less attractive to us”, without its talismanic CEO.

“I think it is time for the board of directors to step up and promote a chief operating officer and really develop a good management team around him,” he told the BBC.

“Clearly Elon Musk is doing what he thinks is best for him but he also has shareholders like me who don't want to be on this ride, would have much preferred what settlement he had made [with the SEC] and he could get back to the business of building cars.”

Mr Musk was reportedly close to settling with the SEC over its allegations but backed out at the last moment.

The Wall Street Journal reported that the regulator was willing to file a settlement approved by the Tesla boss, but that his lawyers then said that they no longer wanted to do a deal.

Peter Henning, a law professor at Wayne State University and a former SEC lawyer, said Mr Musk is among the highest-profile CEOs that the commission has threatened with such a strong potential penalty.

“You've got one of the iconic CEOs of the day who is being threatened with removal from office. They can't strip of him of his shares but they can keep him out of the C-suite,” Mr Henning said.

Joseph Grundfest, a professor at Stanford Law School and former SEC commissioner, said Musk will likely want to settle before trial so that he could conceivably stay on as CEO, with some constraints such as prohibiting him from making public statements without supervision. But Musk also could agree to step down as CEO and instead take another title, such as chief production officer.

“One possibility could be to appoint someone as a monitor over all of his communications. He wouldn't be able to tweet or post anything directly without the approval of a chaperone,” Grundfest said. “He is not going to be able to remain as CEO with no conditions. That is not on the table.”

Mr Grundfest also said that the challenge for the SEC is to “appropriately discipline Musk while not harming Telsa's shareholders.”

The SEC said that Mr Musk knew that his claim to have “secured funding was “based on a 30 to 45 minute conversation regarding a potential investment of an unspecified amount in the context of an undefined transaction structure.”

Mr Musk’s suggested price of $420 was inspired by the significance of that number in “marijuana culture”, the SEC alleged.

The documents claim he calculated that the shares might sell at $419 but rounded the price up because he thought his then girlfriend, musician Grimes, “would find it funny”.

Mr Musk is viewed by many shareholders as the leader and brains behind Tesla's electric car and solar panel operations.

“Elon is Tesla and Tesla is Elon and that’s great when Elon is scoring touchdowns and grand slams but not so great when there are negative things tied to him,” said Karl Brauer, executive publisher at car research firm Kelley Blue Book.

Tesla’s board, fully aware of Mr Musk’s central importance to the company, issued their full backing on Thursday.

The members of the board “are fully confident in Elon, his integrity, and his leadership of the company,” they said in a statement.

“Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees."