The US Securities and Exchange Commission (SEC) has filed a lawsuit against Elon Musk, CEO and chairman of Tesla, accusing him of fraud over tweets and statements he made in early August claiming he had secured funding to take the electric auto maker private.
"If Elon Musk resigns or is not the CEO, Tesla is a fundamentally different company that is less attractive to us", said Ross Gerber, chief executive officer of Gerber Kawasaki in Santa Monica, California, which holds Tesla stock.
Musk published his infamous tweet about taking Tesla private on August 7, briefly sending the company's stock price to a 52-week high before falling after it became clear the board had no information about his plans or funding sources and that the "funding secured" statement was unfounded. True, the stock market's bears, short-sellers, have placed big bets on a collapse of Tesla's stock.
Since that tweet, the market value of Musk's electric-car company has fallen $19.6 billion, with Tesla shares sliding more than 30 percent.
In July, according to the SEC's complaint, Musk met with representatives of the Saudi Arabia sovereign wealth investment fund about possibly taking Tesla private, but per the SEC, "Musk acknowledged that no specific deal terms had been established" and that "Musk did not communicate with representatives of the Fund again about a going-private transaction until August 10, three days after his August 7 statements".
In suing Musk on Thursday, the SEC put shareholders' worst-case scenario on the table: Musk's potential ouster from Tesla. Instead, he is gearing up for war with the help of the legal brawler who another flamboyant billionaire, Mark Cuban, retained to beat the SEC's charges of insider trading.
The fraud case comes amid a squall of disquieting tweets and other troubling disclosures that have raised questions about whether Musk should remain at the helm of Tesla, a company valued at $46 billion.
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Four early research notes from Wall Street analysts and brokerages all said that Musk might have to resign.
Musk was uncharacteristically silent on Twitter Thursday, but said in an emailed statement that "this unjustified action by the SEC leaves me deeply saddened and disappointed".
The SEC couldn't resist at minimum making an example of Musk. One prominent Silicon Valley investor, who spoke on condition of anonymity to offer his candid assessment of the company, said Tesla faced a "total vacuum" of capability and confidence if Musk was kicked out.
"Without a doubt we think [Musk leaving] would be a negative".
Hanging in the balance is Tesla, the $45 billion emblem of America's future in battery-powered cars.
Tesla has racked up a massive debt load as it's poured money into mass production of the Model 3, the company's first vehicle intended for a mainstream market.
Tesla shareholders may hope that the company ends up like Uber, whose co-founder, Travis Kalanick, left last summer. Tesla is "still a powerful brand on its own", said Karl Brauer, executive publisher of Kelly Blue Book and Autotrader.