On Tuesday, Tesla Inc. (TSLA) CEO Elon Musk made the dramatic announcement that he was considering taking Tesla private for $420 a share on Twitter. In an email sent to Tesla employees posted on the company's official blog, Musk explained that he is mulling taking the firm private to protect it from short sellers and wild swings in stock prices. However, the email didn't provide any details regarding financing. (See also: What if Tesla Goes Private?)

Now officials at the Securities and Exchange Commission's San Francisco office are reportedly trying to find out whether Musk was being truthful. According to sources speaking with The Wall Street Journal, the agency is looking at whether the CEO's claim that the funding for the transaction was secured and that only a shareholder vote would be required to initiate the largest-ever corporate buyout had a factual basis. The New York Times reported that the SEC contacted Tesla officials on Wednesday, and besides probing the content of the tweets, they also asked why the company did not make an announcement via a regulatory filing.

Although the SEC and Tesla have not commented on the matter, experts have said there is a possibility that regulators could find Musk guilty of market manipulation or securities fraud.

I will tell you this from working at a hedge fund that was short stocks. Every hedge fund who is short $TSLA #Tesla will be calling every government official, SEC member and lawyer to see if #ElonMusk violated any laws with his tweet.
— Will Meade (@realwillmeade) August 7, 2018

"I do see a few things that are problematic," said former SEC Chairman Harvey Pitt in an interview with CNBC on Tuesday afternoon. (See also: The SEC: A Brief History Of Regulation)

Pitt made it clear that Musk using social media to inform investors about his intent isn't in violation of SEC rules as long as investors have been told where to look. That may not be a problem here because, as MarketWatch pointed out, in a Nov. 2013 8K filing Tesla had directed investors looking for additional information to follow Musk’s and Tesla’s Twitter accounts. Musk also has 22.3 million followers on Twitter, and his every tweet on the subject received immense media coverage.

However, Pitt added that the SEC rather than focus on the medium, would most likely examine the facts and Musk's intent behind the tweets closely to determine if he's guilty of market manipulation or fraud. According to him, the investigation would begin with a look at all the internal communications between Musk and other directors, senior officers, lenders and the source of the funding to verify if his tweets were true. 

According to Pitt, proving manipulation requires showing intent, which is difficult, but if any of the facts Musk disclosed about the source of funding and amount were false, it would constitute fraud, especially if there's an indication that he was "just floating this out to have an influence of the market price." 

“If he doesn’t have financing in place, but the deal happens anyway, then it may be, no harm, no foul,” said Ira Matetsky, a partner at Ganfer Shore Leeds & Zauderer, to MarketWatch. “If this was a pipe dream going nowhere, there will be a case.”

"The use of a specific price for a potential going private transaction is really unprecedented and therefore raises significant questions about what his intent was," added Pitt.

While the stock gained 11% on Tuesday before markets close, it fell 2.45% on Wednesday as the dust began to settle and investors questioned how viable the billionaire's plans are. Shares were trading 1% lower on Thursday morning during pre-market trading.