An SEC press release says the agency asked the U.S. District Court in Manhattan for a "bar prohibiting Musk from serving as an officer or director of a public company".
Shares of Tesla Inc dived 12 per cent in early trading on Friday after US regulators accused chief executive Elon Musk of fraud and sought to remove him from his role in charge of the electric auto company.
That statement was "false and misleading", the SEC alleges, and was the first of a series of "materially false and misleading statements".
The SEC's lawsuit, filed in Manhattan federal court, caps a tumultuous two months set in motion on August 7 when Musk told his more than 22 million Twitter followers that he might take Tesla private at $420 per share, with "funding secured".
According to the SEC filings, Musk said that calculation resulted in a price of $419, which he rounded up to $420 "because he had recently learned about the number's significance in marijuana culture and thought his girlfriend 'would find it amusing, which admittedly is not a great reason to pick a price'". "Integrity is the most important value in my life and the facts will show I never compromised this in any way", he said. In the case of Musk's departure, Tesla would no longer be viewed as a "founder-led likely disruptor of multiple industries", and just like any other niche automaker, he stated.
According to the complaint, Musk met with representatives of a sovereign investment fund for 30 to 45 minutes on July 31 at Tesla's Fremont, California, factory.
"Musk acknowledged that no specific deal terms had been established at the meeting and there was no discussion of what would or would not be considered reasonable".
The regulator wants Musk to pay fines and any money he gained from the spike-causing tweets, and wants to remove him as CEO of Tesla.
Gene Munster, managing partner at venture capital firm Loup Ventures, said the lawsuit adds further distraction at a critical 6-month juncture in the company's viability.
But the board's support will not end Tesla or Musk's bad run. At that level, the stock is more than 30 percent lower than its 52-week high of $387.46, which it hit on the day of Musk's Tweet.
In a joint statement, Tesla and its board reacted late Thursday, saying they "are fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful USA auto company in over a century", as reported by The Washington Post. Musk's nine-word tweet could be the most costly mistake he has ever made.