Shares of Tesla have dived 13% as Wall Street worried a lawsuit from US regulators could force chief executive Elon Musk to step down and make it difficult for the loss-making carmaker to raise more capital.
The SEC said Mr Musk had made a series of "false and misleading" tweets about potentially taking the company private.
At least five research firms said Mr Musk might have to resign following the lawsuit.
Some analysts said SEC's action was the beginning of a legal battle with authorities, short sellers and other investors over Musk's actions that could cost Tesla heavily.
Mr Musk, 47, is the public face of Tesla, and has driven the company to the verge of profitability with a costly ramp-up of production of its Model 3 sedan over the past year.
The Silicon Valley billionaire, who within three weeks of the tweets had abandoned the plan to delist Tesla, said overnight he had done nothing wrong and the company's board reiterated its support for him.
The lawsuit was filed after a proposed settlement with the SEC fell apart, media reports said.
Mr Musk refused to pay a nominal fine and give up the chairman role for two years as part of a settlement offered by the SEC, CNBC reported.
"It will be too damaging to Tesla for him to be removed fully," one US analyst said. "In order for Tesla to raise money I think investors will want Mr Musk to stay involved but have more controls in place," he added.
In the lawsuit, the SEC yesterday said that Mr Musk had surprised members of his own team and investors with a series of tweets, starting with the August 7 announcement that he was thinking of taking Tesla private.
Twelve minutes after the first tweet, Tesla's head of investor relations texted Mr Musk's chief of staff to ask whether his announcement was "legit", the SEC said.
The US Department of Justice, which has the authority to press criminal charges, has also questioned the company about Mr Musk's tweets, the company said this month.
Mr Musk said he had done nothing wrong. "This unjustified action by the SEC leaves me deeply saddened and disappointed," he said in a statement.
"Integrity is the most important value in my life and the facts will show I never compromised this in any way," he added.
Tesla's board said they are "fully confident" in Mr Musk.
SEC accuses Tesla boss Elon Musk of fraud pic.twitter.com/vh0XHOI2th— RTÉ Business (@RTEbusiness) September 28, 2018
The SEC's lawsuit, filed in Manhattan federal court, caps a tumultuous two months set in motion on 7 August when Mr Musk told his more than 22 million Twitter followers that he might take Tesla private at $420 per share, with "funding secured".
On 24 August, after news of the SEC probe had become known, Mr Musk blogged that Tesla would remain public, citing investor resistance.
In its lawsuit, the SEC said Musk calculated the $420 price per share based on a 20% premium over that days closing share price and because of the number's slang reference to marijuana.
The lawsuit, which cites emails and text messages between Mr Musk and Tesla executives, quoted Mr Musk as saying he thought his girlfriend "would find it funny, which admittedly is not a great reason to pick a price".
After the initial tweet, Tesla's chief financial officer asked Mr Musk "would it help" if executives drafted a blog post or employee email to explain his tweet. Mr Musk responded, "Yeah, that would be great."
Mr Musk had not discussed the $420 figure with any potential funding source before he broached the subject to Tesla's board in an August 2 email, the SEC said.
The SEC said its investigation into Tesla is ongoing.
The move to bar Mr Musk as an officer of any public company was a rare move for the SEC against the CEO of such a well-known firm.
The SEC lawsuit comes as Tesla has been struggling to deliver its new Model 3 car, which is key to the company's future profitability, after a long series of production issues and delays.
Mr Musk has long used Twitter to criticise short-sellers betting against his company, and already faced several investor lawsuits over the 7 August tweets, which caused Tesla's share price to gyrate.
According to the SEC, Mr Musk "knew or was reckless in not knowing" that his tweets about taking Tesla private at $420 a share were false and misleading, given that he had never discussed such a transaction with any funding source.
The SEC said Mr Musk met for less than an hour with three representatives of Public Investment Fund, at the company's California plant on 31 July during which the lead representative for the Saudi Arabian sovereign wealth fund expressed interest in taking Tesla private if the terms were "reasonable," according to the lawsuit.
Mr Musk acknowledged the meeting lacked discussion of "even the most fundamental terms" of the deal and nothing was set in writing, according to the lawsuit.
A week later, Mr Musk announced his plan to the world without having discussed the matter again with the fund or looked at many of the logistics of going private, the SEC said.
Late in the day of Mr Musk's initial announcement of his plans ,the head of investor relations was asked whether there was a verbal or written commitment of funding.
"I actually don't know, but I would assume that given we went full-on public with this, the offer is as firm as it gets," the head of investor relations responded, according to the lawsuit.
The SEC said that Mr Musk did not communicate with the fund representatives again until three days after his tweets.