Electric car company Tesla’s stock has taken a dive after the Securities and Exchange Commission announced a civil suit against company CEO Elon Musk on Thursday according to CNBC.
Tesla’s stock closed at $307.52 Thursday. Shares of the popular car company plummetted 11 percent Friday after it was reported that Musk was being accused of fraud by the SEC.
The complaint against Musk says that he made “false and misleading” statements and didn’t properly notify regulators of material company events.
Musk called the SEC’s allegations “unjustified” and said he “never compromised” his integrity.
One Wall Street firm told CNBC that they were concerned that the lawsuit might impact the way people see Tesla’s brand and consumer’s desires to purchase the cars.
“We see the potential for negative sentiment to impact demand and employee morale,” Morgan Stanley analyst Adam Jonas said in an investor note. “In our view, this is particularly a risk if the situation is not resolved relatively quickly.”
Banking giant J.P. Morgan told CNBC that the news will likely affect Tesla’s ability to raise financing for future projects.
“We are concerned that decreased confidence in Tesla on the part of investors may impact the company’s ability to raise capital on amenable terms,” analyst Ryan Brinkman said in a note to clients Friday.
LIVE: Watch Tesla's stock trade in real time, following news that CEO Elon Musk is being sued by the SEC for fraud. https://t.co/5d9PYV3ja0
— CNBC (@CNBC) September 28, 2018
Financial institution Barclays told CNBC that if Musk was forced to leave because of the lawsuit, Tesla’s stock would take a massive hit.
“The SEC civil action may lead to Musk’s exit from Tesla (either permanently or temporarily) and the Musk premium in the shares dissipating,” analyst Brian Johnson said in a note to clients Friday.
“Tesla shares have ~$130 of Musk premium for future success that might dissipate.”
Musk is forced to watch his company’s stock freefall shortly after it was reported by CNBC that he pulled out of a settlement deal with the SEC.
The terms of the agreement would have seen Musk and his company pay a fine and wouldn’t have required Musk to admit any guilt.
The settlement would have required Musk to step down as chairman for two years and have Tesla appoint two independent directors to head the company in his place.
Musk pulled out of the deal at the last minute, however, reportedly refusing to sign the deal because he felt it wasn’t “truthful to himself” and that he “wouldn’t have been able to live with the idea that he agreed to accept a settlement and any blemish associated with that”, according to sources.
Tesla was not immediately available for comment for that CNBC report.