Tesla CEO Elon Musk refuted the fraud charges brought against him in a lawsuit by the SEC.

Elon Musk and the Tesla board have fired back at the SEC, denouncing the federal lawsuit that could lead to the ouster of the automaker’s founder and CEO.

On Thursday, the Securities and Exchange Commission sued Musk, alleging he made “false and misleading statements” to investors when tweeting and posting about his plans to take the carmaker private last month. The suit could force Musk’s ouster, bar him permanently from holding a position of authority at a public company and result in millions of dollars in fines.

While Tesla itself was not named in the suit, many observers expect that move could yet follow. Even if it didn’t, the company has been targeted by several investor lawsuits.

The 47-year-old executive has now responded to the lawsuit, a statement from Musk saying, “This unjustified action by the SEC leaves me deeply saddened and disappointed. I have always taken action 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.”

Separately, the Tesla Board issued a joint statement with Musk that said, “Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful U.S. auto company in over a century. Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees.”

Biz reporter Liz Claman pushed Musk for answers about taking the company private.

(SEC sues Tesla CEO Musk, alleges fraud over privatization plan. Click Here for the story.)

Since the SEC filed its lawsuit in Manhattan District Court on Thursday afternoon, investors have indirectly weighed in, driving TSLA shares down by as much as 11% overnight, though the stock appeared to be rebounding slightly on Friday morning before regular trading began. Thursday’s closing bell price of $307.52 was down sharply from the $379.57 peak that followed the first announcement that Musk wanted to take Tesla private.

The SEC lawsuit stems from the tweet Musk sent out on Aug. 7, that said “Am considering taking Tesla private at $420. Funding secured.” That set off a tidal wave of activity on the stock market, Tesla shares surging to near the previous 52-week high of $389. But, in the following days, as questions were raised about the details of any deal, TSLA shares quickly started to fall.

It didn’t help when, barely a week later, Musk put up a blog post attempting to explain the genesis of the plan. He indicated he had met with representatives of the Saudi Arabian sovereign investment fund in late July and that they had indicated an interest in funding a privatization plan. But, not only had they not formally signed on, but also it quickly appeared Musk had not even run the idea by the Tesla board.

If anything, it began to look like the sort of idea one might scratch out on a napkin before starting to work out the strategy internally, not something that had been shared with the accountants and lawyers, as well as the board of directors.

“According to Musk, he calculated the $420 price per share based on a 20% premium over that day’s closing share price because he thought 20% was a ‘standard premium’ in going-private transaction,” the SEC suit alleges. “This calculation resulted in a price of $419, and Musk stated that he rounded the price up to $420 because he had recently learned about the number’s significance in marijuana culture and thought his girlfriend ‘would find it funny, which admittedly is not a great reason to pick a price.'”

The reference to marijuana has taken on significant additional meaning since the original tweet as a friend of Musk’s girlfriend, pop singer Grimes, has alleged Musk may have been doing LSD the night of the infamous tweet – something he has denied. But he went on to smoke marijuana during an appearance on a recent podcast hosted by California counter-culture comedian Joe Rogan.

Musk continued to court controversy, smoking a joint live on comedian Joe Rogan's podcast.

(Click Here for more about Tesla bringing EVs to the people – literally.)

With pressure increasing on the CEO to come up with a clear privatization strategy, Musk instead announced on Aug. 27, that he was dropping the idea, claiming it did not fly with the carmaker’s current investors.

The SEC lawsuit is “no surprise,” said Joe Phillippi, a long-time Wall Street auto analyst and now head of AutoTrends Consulting. The original tweet was not just “flippant,” said Phillippi, “it clearly smacked of manipulation, and they (the SEC) obviously have mountains of info warranting bringing a charge.”

What might happen next is far from certain. But the potential headaches for Musk are significant. He could face a hefty fine, as might Tesla. As mentioned earlier, Musk could also find himself barred from holding a management or board position with a publicly traded company, creating problems not only in his role with Tesla but as the head of both the tunnel-digging Boring Co. and the rocket firm SpaceX.

The latter company has extensive ties to the U.S. government, among things serving as the launch service for International Space Station supply missions. SpaceX is also preparing to become the first private company to launch U.S. astronauts into space. The feds were already investigating Musk in the wake of his appearance on the Joe Rogan podcast.

The SEC suit, observers said, could add further credence to the lawsuit by short-sellers who claim the original tweet cost them hundreds of millions of dollars in losses. Ironically, in recent weeks, Tesla stock has tumbled sharply as concerns about Musk’s behavior has escalated, turning into big gains for those betting against the carmaker.

Tesla faces a number of other problems, including several federal safety investigations. and a National Labor Relations Board probe based on claims the carmaker fired nearly 1,000 workers at its Fremont, California assembly plant because they favored a union.

(To see more about Musk facing a Justice Department probe, Click Here.)

The company will likely find itself under even more pressure now to deliver on Musk’s promise to turn in a profit for the second half of 2018.

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