The Securities Exchange Commission, an integral branch of the US Government, is suing Elon Musk for issuing misleading Tweets which coerced investors into thinking he was taking his Tesla company private.
And there is a loophole: If Tesla were to secure the funds to take the company private, Musk could stay on as chief executive because the SEC can only bar him from leadership roles at publicly traded companies, Davison said. Musk has blamed short-sellers, investors betting on a collapse in a company's share price, for Tesla's woes.
But Musk's future at the helm of the electric vehicle company was thrown into question when the SEC sued him on Thursday.
The SEC alleges Musk wasn't even close to locking up the money and based the price at a slang reference to marijuana - 420 - to amuse his girlfriend. The SEC is seeking to ban Musk from serving as an officer or board member at Tesla or any other company, and to pay civil penalties. Shares are down 30 percent since Musk's August 7 tweet, wiping out $20 billion of Tesla's market value.
The Wall Street Journal reports that Musk had a verbal agreement in place with Saudi Arabia's sovereign-wealth fund, and also believed that if that fell through he could use his own investment in Space X with the approval of the board.
Musk said in a statement that the SEC's "unjustified action" left him "deeply saddened and disappointed".
Tesla's shares plunged on the prospect of life after Musk. As to how Model 3 production stands today, Electrek is reporting that Tesla during the September quarter managed to manufacture more than 51,000 units, just barely eclipsing the lower-end of the company's Model 3 production goal for the quarter. Musk will argue that he had no doubt the funding for a take-private deal was in the bag, and therefore that he told the truth.
Musk reportedly said this would compromise his character and so he backed out at the last minute, which prompted the formal charges.
Those legal skirmishes could ramp up pressure on the board to map out a post-Musk succession plan as questions grow over his fitness for the job.
In a previous fraud case over blood-testing firm Theranos, the Justice Department brought criminal charges three months after the SEC announced its settlement with the company's founder Elizabeth Holmes. 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. Cowen analyst Jeffrey Osborne wrote on Friday that he thinks Tesla will need to raise $2 billion in the fourth quarter.