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Tesla shares plummeted Friday morning after the U.S. Securities and Exchange Commission sued Elon Musk for misleading investors.
Musk tweeted on August 7 that he had secured funding to take Tesla private at $420 per share. Typically, the shares match the company’s announced purchase price. Investors believe the deal will close and the company will eventually reach the price it says it will sell for.
However, skeptical investors never believed Musk, and the stock never got close to $420 per share. It rose to a maximum of $387.46 on August 7 and then plummeted.
The SEC said its suspicions were well-founded: Musk never received funding. Three weeks after his initial tweet, he abandoned his plans to go private.
The stock fell to $265 after the bell on Thursday, 14% below Tesla’s closing price that day. Including the after-hours plunge, Tesla shares have plunged more than 29% since Musk’s infamous tweet.
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Tesla’s (Tesla) A falling share price could come back to haunt the company. Tesla is burning cash to build expensive factories and cars, but it desperately needs the money to pay down about $1 billion in debt by February 2019. If Tesla’s share price stays above $360, most of that will convert into stock – but that seems unlikely.
If Tesla needs cash to pay down debt, and the company lacks cash to pay down debt, Tesla can raise money by issuing more debt or stock. But that could further depress its stock price and thus the amount of money the company has to spend on new infrastructure to build its cars.
Musk denied the company faced a cash shortage. He said increased Model 3 sales will generate enough cash to eventually make Tesla profitable in the second half of 2018.
The SEC lawsuit could cause other problems for Tesla.
The agency has asked a federal judge to block Musk from serving as an officer or director of a public company and impose other penalties.
This is a serious problem for Tesla, which Musk built from scratch into a multi-billion dollar company. He is the automaker’s chairman and chief executive.
CNN Business (New York) First published September 27, 2018: 5:52pm ET