Federal prosecutors are scrutinizing personal benefits
Tesla may have provided
Elon Musk since 2017—longer than previously known—as part of a criminal investigation examining issues including a proposed house for the chief executive.
The U.S. Attorney’s Office for the Southern District of New York also has sought information about transactions between Tesla and other entities connected to the billionaire, people familiar with the investigation said. Prosecutors have referenced the involvement of a grand jury.
The new information indicates that federal prosecutors have a broader interest in the actions of Musk and Tesla than was previously known and that they are pursuing potential criminal charges. The Wall Street Journal
reported last month that the Justice Department is investigating Tesla’s use of company resources on a secret project that was described internally as a house for Musk.
The house effort was known within the carmaker as “
Project 42,” and plans called for an expansive glass building to be constructed near Tesla’s Austin-area factory and headquarters.
The Securities and Exchange Commission has opened a separate civil investigation into the project, the Journal has reported.
On X, the social-media platform formerly known as Twitter, Musk has said there isn’t a glass house “
built, under construction or planned.” He didn’t address past work or plans; neither he nor his representatives have responded to requests for comment.
Manhattan-based federal prosecutors have sought information on the driving range of Tesla’s electric vehicles.
Last year, Musk explored building a home for himself on a horse farm across the Colorado River from the factory known as Giga Texas—and met with an architect to brainstorm designs—but “put off building it,” Walter Isaacson wrote in an authorized biography of the billionaire published this month. At one point, according to the book, Musk suggested the design could incorporate a shard of glass emerging from a lake.
The Journal spoke with an array of people about Tesla and the government investigations for this article.
Among the questions prosecutors are examining is whether Tesla properly disclosed perks Musk might have received. Internal or external lawyers typically handle such disclosures. At Tesla, Musk has at times personally guided what information to disclose to shareholders. It couldn’t be learned whether that was the case with any perks that prosecutors are scrutinizing. Tesla has said it generally doesn’t provide perks or other personal benefits to its top executives.
The Manhattan-based federal prosecutors also have sought information about a separate issue, the driving range of Tesla’s electric vehicles, the Journal reported in its article last month.
The Journal reported last October that the SEC and federal prosecutors in Washington and San Francisco
were investigating whether Tesla misled consumers and investors about the performance of its advanced driver-assistance system known as Autopilot. The agencies haven’t announced any enforcement action against Tesla in connection with those investigations.
Tesla has disclosed in securities filings that it received Justice Department inquiries about Autopilot.
Within Tesla, Project 42 and its purpose were closely guarded secrets.
Prosecutors are examining whether Tesla properly disclosed perks Chief Executive Elon Musk might have received.
Tesla lawyers and board members scrutinized the project after employees became concerned about how millions of dollars of large-format glass panels the company had ordered would be used.
Zach Kirkhorn, who was Tesla’s chief financial officer before
stepping down last month, was among those who raised concerns internally about the project.
Some employees were told a limited liability company called Peninsula LLC would reimburse Tesla for certain costs. An LLC by that name, formed in April 2022, is managed by Musk adviser Jared Birchall, Texas records show.
Whether Tesla was reimbursed and whether the glass was ever delivered to the company couldn’t be learned.
Tesla is one of several companies that has received questions about executive perks recently from the Justice Department or the SEC.
Corporate policies on what constitutes personal or professional spending by C-suite executives vary, and there can be broad leeway, corporate governance experts say.
SEC regulations require public companies to disclose perks and other personal benefits provided to top executives if the total value of those benefits is $10,000 or more. Personal benefits can include reimbursement for private security, housing allowances or airplane use.
Stephen L. Cohen, a lawyer at Sidley Austin who leads its regulatory and enforcement group, said for the past few years the SEC’s Enforcement Division has been aggressive around its interpretation of legal standards involving disclosure and looking for anomalies.
“Companies have been paying attention to the SEC’s enforcement efforts and tightening their controls in this area, which is likely resulting in changes to perks or increased disclosures,” he said. “But I believe there is also a view at the SEC that the public cares about executive perks.”
The regulations also require companies to disclose transactions above $120,000 in which an executive officer or other related party has a material interest.
Musk runs several companies in addition to Tesla—including rocket company SpaceX and the social-media platform X.
Last October, around the time Musk was acquiring the company then-known as Twitter, he borrowed
$1 billion from SpaceX. He paid the loan back with interest the next month.
Around the time the $44 billion deal closed, Musk
called in Tesla engineers to review Twitter’s engineering talent.
Musk testified in a Delaware trial last year related to his compensation that Tesla employees were doing so on “a voluntary basis after-hours.”
Tesla said in an April proxy filing that Twitter had incurred roughly $1.4 million in expenses through February under agreements with the electric-vehicle maker. It also said it had agreements with SpaceX.
Musk has become the world’s wealthiest person thanks in large part to the soaring value of his stake in Tesla, where he is compensated in stock options. Tesla’s recent proxy statement showed that Musk didn’t receive any new compensation from the carmaker in 2020, 2021 or 2022.
Dave Michaels and James Fanelli contributed to this article.
