The Securities and Exchange Commission has sued Tesla CEO Elon Musk over an August tweet he made claiming he had "funding secured" to take Tesla private at $420 per share. The SEC says that this and subsequent tweets were false and misleading—and therefore a violation of market-manipulation laws.

The stakes are high. In addition to seeking financial penalties and an injunction against similar tweets in the future, the SEC is also seeking that Musk "be prohibited from acting as an officer or director" of companies that issue shares under Section 12 or Section 15(d) of federal securities laws. Stephen Diamond, a securities law expert at Santa Clara Law School, tells Ars that means Musk would have to step down as Tesla's CEO and give up his board seat.

In another tweet, the same day as his initial buyout tweet, Musk claimed that "[i]nvestor support is confirmed. Only reason why this is not certain is that it's contingent on a shareholder vote."

But Musk was quickly forced to admit that things were far from certain. He later said that the potential investor he had in mind was Saudi Arabia's sovereign wealth fund. The leader of that fund had expressed interest in taking Tesla private a few days before Musk's initial tweet. But the SEC says Musk and the fund had not discussed the details of the transaction, to say nothing of having any kind of written agreement.

At the time of his initial tweets, the SEC says in its lawsuit, "Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source."

Update: "This unjustified action by the SEC leaves me deeply saddened and disappointed," Musk says in an emailed statement. "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."