It was a relatively calm market news day on Tuesday, and then Elon Musk's verified Twitter account lit up.
Around lunchtime, a tweet appeared that said Musk was mulling a take-private transaction for Tesla, his electric car company. Much more interesting, the tweet offered a target price, $420 a share, and said the financing was lined up.
Tesla shares jumped almost immediately. Musk has 22.3 million followers on Twitter. The stock was already moving Tuesday after the Financial Times reported that Saudi Arabia's sovereign wealth fund had taken a $2 billion stake in the company.
Securities lawyers said they were shocked by the tweet. "I do not believe this is the appropriate way to suggest going private," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
The investing public believed what the tweet said. And if the content of the tweet wasn't true, lawyers said, it could set up Musk and the company for regulatory action and private lawsuits. A series of tweets that dribbled out on Musk's account later in the afternoon suggested they weren't a hoax. Tesla's shares were halted for pending news in midafternoon trading.
That news came out at around 3:30 p.m. ET via a Tesla blog post containing Musk's email to employees. The CEO said, "A final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best." He cited the potential for wild swings in the stock price "that can be a major distraction," the quarterly earnings cycle and being the target of short sellers.
"Being public means that there are large numbers of people who have the incentive to attack the company," he said. Indeed, Musk has railed against short sellers, who bet against a company's stock.
The post, however, did not make any mention of financing referenced in Musk's original tweet.
The stock reopened higher by more than 10 percent after the blog post was released.
"If his comments were issued for the purpose of moving the price of the stock, that could be manipulation, it could also be securities fraud," former SEC Chairman Harvey Pitt told CNBC on Tuesday. "The use of a specific price for a potential going private transaction is highly unprecedented and therefore raises significant questions about what his intent was. So, that would have to be investigated."
Musk, a billionaire who also dabbles in space exploration, solar power and tunnel projects, is closely associated with Tesla but he is not a majority shareholder, holding less than 20 percent of the shares. Securities lawyers said Telsa's board would have to form a committee to explore a take-private or risk being accused of skirting their duty.
But as CEO, Musk's public statements can also be considered representative of the company, and investors could claim they took the tweet seriously. "What he says is what the company says," Peter Henning a professor at Wayne State University's law school. "The problem with email and Twitter is there is no tone of voice."
Five years ago the Securities and Exchange Commission had to clarify its social media policy after Netflix founder and CEO Reed Hastings set off a firestorm of his own.
Companies can use social media like Facebook and Twitter to announce key information and be OK under Fair Disclosure regulations as long as investors know that they can find that information on the social media accounts.
Reg FD was designed to make sure investors could get information at the same time, rather than having select disclosures to some before others. The SEC's enforcement division had investigated Hasting's use of a personal Facebook page back in 2012 to say the streaming service's monthly online viewing had exceeded 1 billion hours for the first time.
The SEC didn't take any action against Netflix or Hastings but clarified its social media policy. "Personal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information," the SEC said in a statement at the time.
There might not be any SEC action this time, either, but it's only a matter of time before an executive gets accused of making a false or misleading statement on social media, said Kevin LaCroix, an attorney focused on management liability issues. "There will be a case someday."