Shares of Tesla dropped sharply in after-hours trading Thursday court documents showed the Securities and Exchange Commission is suing Elon Musk for fraud.
Sources close to the company told CNBC the company was also expecting to be sued, though Tesla was not named as a defendant in the complaint.
Tesla's stock dropped more than 10 percent to around $276, down from $307.52 as of the close.
Musk, the company's CEO, tweeted last month he was thinking about taking Tesla private, noting: "funding secured."
Tweet
The tweet sent on August 7 Tesla shares flying and they closed 11 percent higher on the day.
After sending the tweet, Musk claimed he had been in talks with the Saudi Arabian sovereign wealth fund and was confident he'd have the funding to take the company private at $420 a share. Tesla abandoned its plans to go private later in August.
"The SEC is looking at it very seriously. The stock is going to be under pressure while this gets resolved and obviously these things take time. The SEC obviously has fired the first shot," said Art Hogan, chief market strategist at B. Riley FBR. "It sounds like the company's first communication was to defend."
Tesla since Aug. 7
Source: FactSet
In its complaint, the SEC said Musk knew he "had not agreed upon any terms for a going-private transaction with the Fund or any other funding source," adding Musk had "had no further substantive communications with representatives of the Fund beyond their 30 to 45 minute meeting on July 31."
Regardless, the stock has been a roller-coaster ride for investors ever since the infamous Aug. 7 tweet. Ever since popping that day, the stock has dropped 19 percent through Thursday's close.
--Patti Domm contributed to this report.
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