Tesla CEO Elon Musk picked $420 as the share price for possibly taking the company private in August because it is a reference to pot culture, the Securities and Exchange Commission (SEC) alleged on Thursday during a news conference.
The SEC has sued Musk for fraud, charging the Tesla chief with making "false and misleading tweets," and for failing to properly notify regulators of material company events.
Musk said the SEC's allegations are "unjustified" and that he acted in the best interests of investors.
"We allege that Musk had arrived at the price of $420 by assuming a 20 percent premium of what Tesla's then existing share price (was), and then rounding up to $420 because of the significance of that number in marijuana culture, and his belief that his girlfriend would be amused by it," Steven Peikin, co-director of enforcement at the SEC, said during the conference.
A spokeswoman for Tesla told CNBC on Friday that the company had no additional comments regarding Peikin's allegations.
In August, Musk tweeted that he was considering taking Tesla private. He added: "Funding secured."
The tweet sent Tesla's stock see-sawing for weeks. Musk later explained that he had been in discussions with the Saudi Arabia's sovereign wealth fund and felt confident the funding would come through at his proposed price of $420 per share.
Tesla and its board of directors defended Musk Thursday, releasing a statement saying: "Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful US auto company in over a century."
"The timing of this could not be worse from an automotive market standpoint," Rebecca Lindland, executive analyst at Kelley Blue Book, told CNBC's "Squawk Box." Tesla is facing "a lot of competition from BMW, from Audi from Jaguar — the level of competition in the luxury electric vehicle space is increasing," she added.
According to Lindland, it's unlikely that Musk would choose to step down from the top role. She added that she also does not see Tesla's board asking for his removal.
Shares fell sharply in after-hours trading Thursday.
A large part of Tesla's $52.4 billion market cap, has to do with Musk's presence at the company, D. R. Barton, chief technical analyst at Moneymorning.com, told CNBC's "Street Signs" on Friday.
"A lot of that market cap is based on the fact that Musk is such a force of personality," he said. "I have millennial friends in Silicon Valley that would love to work for Elon Musk. So, without him, it's just a really well-engineered car with a company with too much debt and burning too much cash."
— CNBC's Sara Salinas contributed to this report.