Elon Musk found himself in hot water Thursday when the USA federal securities regulator filed a complaint against the Tesla CEO in Manhattan federal court for "false and misleading" tweets about taking the company private.
Sources familiar with the matter tell CNBC that the deal would have allowed Tesla and Musk to pay a nominal fine.
Elon Musk's run-in with the Securities and Exchange Commission may cost Tesla Inc. nearly half its market capitalization, Barclays analyst Brian Johnson said, adding that the company's stock has about US$130 of "Musk premium" per share that could dissipate.
Tesla has struggled to hit its targets for months and is rapidly burning through cash.
The federal agency is accusing the Tesla CEO of misleading investors when he tweeted last month he planned to take the electric-car maker private. But they were still informal talks that didn't justify Musk tweeting a week later that funding had been secured for a buyout at $420 per share.
Musk recently smoked a marijuana joint during an interview.
Even the $420 price was misleading - based on a joke rather than a spreadsheet.
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'".
As it stands, Musk's future with Tesla remains unclear. On Friday, reports began to circulate that Musk and the SEC had been close to a deal before the SEC filed its suit.
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Musk called off his plans to take Tesla private on August 24.
Analysts are divided about the likely outcome of the case.
"As demonstrated by the stock's reaction, investors believe the removal of Musk from Tesla would be negative for the prospects of the company, despite his recklessness in the go-private tweets".
The complaint alleges that Musk's tweet harmed investors who bought Tesla stock after the tweet but before accurate information about the funding was made public.
There was evidence of "clear manipulation", he said on TD Ameritrade Network. That means he's prepared to fight.
One person with knowledge of the SEC's thinking said on Friday that the SEC lawsuit or a potential settlement did not preclude further action by the Justice Department. "Integrity is the most important value in my life and the facts will show I never compromised this in any way".
"Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company", the statement said.
Here are five things to know about the allegations being made by the SEC in a case that could spell the end of Musk's reign at the electric vehicle maker that he co-founded.
Musk later denied he was 'on weed' when posting the tweets. In other words, Musk wouldn't take the settlement because that would imply that he did something wrong, and he doesn't think he did.