A district judge in California on Wednesday ruled that Tesla Inc. (NASDAQ: TSLA) and chief executive officer Elon Musk must face a lawsuit that alleged Musk deliberately attempted to manipulate the company's stock price.

What Happened

The lawsuit was filed in 2018 based on Musk's infamous tweet that said, "Am considering taking Tesla private at $420. Funding secured."

Am considering taking Tesla private at $420. Funding secured. — Elon Musk (@elonmusk) August 7, 2018

"Nothing in the statement suggested it was merely aspirational," the United States District Judge Edward Chen said, according to Bloomberg.

"It appears factual," and according to the complaint, "was not true," Chen added. The petitioners will now have the chance to prove that Musk intended to defraud them or his tweet caused the volatility in Tesla's stock, Reuters noted.

Tesla will also need to share evidence with the petitioners, and Musk might face a deposition, as part of the legal proceedings, unless the two parties settle out of court.

Why It Matters

Following Musk's tweet, the company's shares gained 13% in a day. Short sellers alleged that the tweet was aimed at manipulating the stock price so that the traders who betted on the stock falling would make a loss. Other investors who betted on the stock price rising also faced losses from the uncertainty going forward, as Tesla's chances of going private appeared slim.

Tesla and Musk separately settled lawsuits with the Securities and Exchange Commission for $20 million each in relation to the tweet back in 2018. In addition, Musk had to relinquish his role as the company's chairman.He was also asked to seek Tesla lawyers' approval before tweeting on certain topics that could affect the company's stock trading.

Nevertheless, Musk got in trouble with the SEC a few months later for another tweet about Tesla's delivery targets.

Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k. — Elon Musk (@elonmusk) February 20, 2019

Price Action

Tesla's shares closed 2.8% higher at $729.83 on Wednesday. The shares traded 2.2% lower at $713.50 in the after-hours session.