Elon Musk: How the Billionaire Business Mogul Found Himself in Legal Turmoil

October 15, 2018 | Lidya Tadesse

Edited By: Destiny Staten

What do you think of when you think of Elon Musk? Maybe you think of the entrepreneurial genius whose startup eventually led to him becoming the CEO of PayPal. Maybe you think of the ambitious head of Tesla who is paving the way of the electric car market. Maybe you think of the visionary who started SpaceX and is pioneering private space exploration. Or maybe you think of the billionaire who took one of his electric cars and shot it into space with one of his rockets just because he could. However you think of Elon Musk, it is impossible to deny the influence he has on the future of the car, space, and tech industries at large. His companies attract major investors and his innovations shape the future of what society can expect from technological advancements. At the same time, Musk has remained a controversial and polarizing figure within industry and pop culture. Unafraid to say exactly what is on his mind, Musk has routinely found himself in a war of words with his critics, which has been escalating over the past few years. Currently, Musk finds himself at the center of multiple controversies, all of which have developed into legal disputes that carry critical implications for the future of Musk and his numerous companies.

Although Elon Musk has never been a stranger to legal controversy (see his lawsuit with SpaceX in 2014 against a competitor), the past 5 months have been an exceptionally tumultuous time for the billionaire entrepreneur. In May, the United Auto Workers union (UAW) filed a complaint against Tesla for violating employee rights under the National Labor Relations Act (NLRA). The complaint came after months of a less than amicable relationship between Tesla and the UAW, the latter of which claims efforts by Tesla employees to unionize have been continuously suppressed by management.1 A recent article published by The Guardian takes a further look behind this claim by interviewing ex-Tesla employees who feel they were pushed out of the company when trying to organize a union. According to various ex-employees, “Talking to other workers about unionizing was really frowned upon,” and “Anything pro-union is shut down really fast.”2 For years, workers have complained about long hours, unsafe working conditions, and having little to no input in policy changes impacting the work environment.3 In the eyes of many employees, the ability to organize a union and utilize collective bargaining would provide much needed leverage to change that. Despite claiming to have an overall “neutral” stand on unions, Musk has been sending mixed messages—both in terms of company policies that appear to thwart any attempts to unionize as well as through his public statements.4 On twitter, Musk did not mince words when he said that “[the UAW] drove GM & Chrysler to bankruptcy & lost 200,000+ jobs for people they were supposed to protect, incl[uding] abandoning NUMMI plant workers. Tesla took over & now it has 10k+ jobs. UAW destroyed once great US auto industry & everyone knows it.”5

However, what ultimately drove the UAW to file their complaint was Musk’s tweet that Tesla workers were free to join unions, but “why pay union dues & give up stock options for nothing?”6 The UAW argues that this tweet is a direct threat by Tesla to its employees that they will lose the shares they currently hold (part of the benefits of working for Tesla) if they try to unionize. Musk and Tesla pushed back, instead asserting that “UAW organizers have consistently dismissed the value of Tesla equity as part of our compensation package.”7 Now, with the complaint having been filed, the National Labor Relations Board (NLRB) will consider whether or not Musk’s statement as CEO of Tesla violated the NLRA. Passed in 1935, the NLRA establishes clear rules and guidelines on what rights employees have as well as what employer actions will infringe upon these rights. Section 7 of the act states “Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining,” and the NLRA defines unfair labor practices as those who aim “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7.”8 Additionally, the Department of Labor states that under the NRLA, it is illegal for employers to “promise benefits to discourage or encourage union support,”9 which seems to most directly challenge Musk’s insinuation that employees could keep their stock shares if they choose not to unionize. For now, it’s hard to say to what extent Musk and Tesla will face legal consequences, if any, for what employees and the UAW describe as a concerted effort to extinguish unionization. Although the jury is still out on if the NLRB will charge Musk and Tesla for violating the NLRA, Musk’s prospects are not too bright. Wilma Liebman, former head of the NLRB, says the Board considers all complaints from the viewpoint of the employee. According to Liebman, “the employee is going to hear it as, ‘If I vote to unionize, stock options will no longer be an option.’ ”10 In any case, Musk and Tesla will be under heavy scrutiny as the NLRB continues its investigation.

Tesla_Factory,_Fremont_(CA,_USA)_(8763129679)
Tesla Factory (Fremont, CA)

Since May, Musk has become embroiled in another, more personal standoff that has recently resulted in a defamation lawsuit against him. Before we consider the implications of this lawsuit, let’s first cover the bizarre series of events leading up to it. In June of 2018, 12 Thai boys on a soccer team and their coach were trapped in a sunken cave. As engineering and diving teams from around the world led efforts to rescue the boys, Musk publicly offered to lend resources and staff from SpaceX and the Boring Company to help—even designing a submarine pod that could transport the kids from the underwater cave to the surface. Ultimately, his submarine pod was not used in the operation that rescued the boys and while Musk’s intentions seemed to be in the right place, others found him to be disingenuous. One of these critics included Vernon Unsworth, who called Musk’s efforts a “PR stunt.”11 Following Unsworth’s statements, Musk claimed to never have seen Unsworth working on the project and then referred to him in a tweet in July as a “pedo guy,” even doubling down after initial pushback and tweeting “Bet ya a signed dollar it’s true.”12 Musk then tried to walk back his accusation a few weeks later in an apology tweet to Unsworth along with the companies he represents as CEO.13 However, this apology was short-lived as a leaked email exchange with Buzzfeed News in early September shows Musk referring to Unsworth as a “child rapist” as well as claiming that “[Unsworth] is an old, single white guy from England who’s been traveling to or living in Thailand for 30 to 40 years, mostly Pattaya Beach, until moving to Chiang Rai for a child bride who was about 12 years old at the time.”14 On September 17th, ten days after Musk’s exchange with Buzzfeed News was published, Unsworth filed a defamation lawsuit against the CEO, seeking up to $750,000 in damages due to Musk’s unsubstantiated allegations.15

In the following days after Unsworth’s filing, both Musk and Tesla leadership have been mum on the issue—perhaps a sign that Musk has finally realized his comments have placed him and his companies in an uphill legal battle. Still, it will be interesting to see how the court proceedings will play out, especially in regards to the most recent allegations Musk made about Unsworth that sparked the lawsuit. More specifically, the fact that Musk had prefaced his email to Buzzfeed with “off the record,” meaning that he never intended for the allegations to be made public, adds an interesting dimension to how this story developed. Since the Buzzfeed News article was published, Musk has criticized the journalists’ decision to release the emails, even going so far as to send a follow-up email to say “I [Musk] sent you an off the record email, which very clearly and unambiguously said ‘off the record.’ If you want to publish off-the-record comments and destroy your journalistic credibility, that’s up to you.”16 On the other hand, Buzzfeed News points to established journalistic standards that state both parties must agree for an interaction to be considered “off the record.”17 Although Buzzfeed News may have a point, that isn’t to say this aspect of the allegations will have no effect on court proceedings in the defamation lawsuit. It may be possible for Musk to minimize the damages he is accused of causing by highlighting that his allegations were never meant to be publicized in the first place. This argument does have its merits, but at the same time it could be argued Musk should have done his due diligence on what “off the record” means before making such an allegation while talking to a major media platform. Regardless, it appears the best-case scenario for Musk is for him to emerge as having made a reckless error whereas the worst-case scenario is for the courts to believe he has strategically spread egregious lies against Unsworth.

As if the legal battles Elon Musk is facing weren’t enough for him already, perhaps the most damning charge levied against him is by the U.S. Security and Exchange Commissions (SEC). On Thursday, September 27th, the SEC filed a lawsuit in which they accused Musk of fraud concerning a tweet he published in early August (are we sensing a pattern here?). The tweet in question is one in which he states, “[I] am considering taking Tesla private at $420. Funding secured.”18 The tweet led investors into a frenzy, skyrocketing the price of Tesla shares—especially at a time when the prices had been going down after Musk’s back and forth with Unsworth.19 However, by the end of August, Musk ended up walking back his initial statement, making another public statement that he had a discussion with his board in which he changed his mind on the issue.20 Immediately, the course of events drew criticism from Wall Street and many pushed for an investigation and charges by the SEC. Three weeks later, the SEC did just that in a press release where they revealed they will be charging Musk with securities fraud for what they describe as “a series of false and misleading tweets about a potential transaction to take Tesla private.”21 More specifically, the part of Musk’s tweet the SEC most issue with was his assertion that funding was secured. Through their investigation, they have reason to believe that Musk had never discussed—much less established—financing partners or potential owners of the company. Final calculations reveal that Musk’s tweet had caused Tesla stock to increase over 6% in early August, which in the eyes of the SEC was an artificial increase in stock price not due to market trends, but rather due to a purposeful release of inaccurate information to shareholders.22

Launch_of_Falcon_9_carrying_DSCOVR_(16512864369)
SpaceX Launching of Falcon 9, February 2015

So, what does this lawsuit mean for Musk and his role at Tesla? The SEC in their complaint are calling for swift action, including “permanent injunction, disgorgement, civil penalties, and a bar prohibiting Musk from serving as an officer or director of a public company.”23 The last part of the SEC’s list of demands would not only push Musk out of a major leadership position of Tesla, but it also has significant implications for the other companies he is currently heading. Although SpaceX and its subsidiary the Boring Company are currently private, how this lawsuit plays out might mean that going public anytime in the future is off of the table so long as Musk is at the helm of both companies. The SEC has a remarkably strong case against Musk, especially since the fraud they are accusing him of is well documented on a public platform. It is now a real possibility that Musk will be pushed out of his position at Tesla, and perhaps eventually the other companies he is the CEO of should other officers want to go public. Recently, corroborated sources have come out to say negotiations between Musk’s personal lawyers and the SEC were taking place prior to the lawsuit being filed, though obviously to no avail. On the morning of September 27th, the SEC agreed to stop pursuing a federal case so long as Musk and Tesla did the following: (1) Have Musk stepdown as chairman of Tesla within 45 days, (2) Have Musk barred from taking the position of chairman for at least two years, (3) Add two new officers to the Tesla board, and (4) Musk could not publicly claim his innocence. Ultimately, the deal broke down at the final minute when Musk walked away.24

The story reveals an undeniable trend we can see in all of the lawsuits filed against the CEO that we’ve discussed thus far—Elon Musk is his own worst enemy. In fact, all three lawsuits were filed on the backs of tweets Musk published himself, meaning the lawsuits were essentially avoidable. Moreover, Musk’s unwillingness to compromise or sincerely apologize is what progressed situations so far as to lawsuits being filed. For instance, if Musk had simply left the Unsworth situation alone after his initial apology, Unsworth would have a far less convincing case for a defamation lawsuit. Likewise, if Musk had waited until he was absolutely certain he was taking Tesla private before tweeting that he would, then the SEC would have no charges to bring forward. In the eyes of many, there’s been a lot of interference lately in Musk’s ability to make thoughtful or rational decisions. Despite being a successful billionaire entrepreneur, ushering in a new age of technological advancements, and being at the forefront of private space exploration, Musk somehow still manages to get in his own way.

At the same time, it may be possible that the positions, money, fame, and power he holds are what led to these situations in the first place. The ego he has developed over the past few years in rising to prominence in technology and society may have led him to believe he was virtually untouchable. In other words, perhaps a better way to look at Musk’s recent legal troubles is not that they resulted despite all of his accomplishments, but rather because of them. To an audience member peering into the spectacle that has become Elon Musk’s public persona, it certainly appears that Musk feels he is above the law. Whether he really is or not will surely be decided within the next months.

Update (10/15): On September 29th, Musk finally reached a settlement outside of court with the SEC on the charges brought against him. As part of the agreement, Musk has agreed to step down as the chairman of Tesla and will not be able to take on the position again for another three years, although he will still remain its CEO. Likewise, Tesla will be appointing two new members to its board and the SEC will be monitoring Musk’s tweets as Musk does not have to “admit” to the charges, but he is also not allowed to “deny” them. Moreover, the SEC wants to make certain a similar incident won’t send the markets reeling again.25

Lidya Tadesse is a junior at Johns Hopkins University, where she is majoring in Public Health Studies with a minor in Psychology

 

 

 


Citations

1 Daniel Wissner, “UAW accuses Musk of threatening Tesla workers over unionization,” Reuters, May 24, 2018, https://www.reuters.com/article/us-tesla-union/uaw-accuses-musk-of-threatening-tesla-workers-over-unionization-idUSKCN1IP2XS.

2 Michael Sainato, “Tesla workers speak out: ‘Anything pro-union is shut down really fast’,” The Guardian, Sep. 10, 2018, https://www.theguardian.com/technology/2018/sep/10/tesla-workers-union-elon-musk.

3 Julia Carrie Wong, “Tesla workers reveal pain, injury, and stress: ‘Everything feels like the future but us’,” The Guardian, May 18, 2017, https://www.theguardian.com/technology/2017/may/18/tesla-workers-factory-conditions-elon-musk.

4 Sainato, “Tesla works speak out.”

5 Wissner, “UAW accuses Musk.”

6 Ibid.

7 Ibid.

8 National Labor Relations Act, 29 U.S.C. §§ 151-169 (1935) ¶ 7 and 8.

9 U.S. Department of Labor, “Employee Rights Under the National Labor Relations Act,” Government Notice.

10 Dana Hull and Josh Eidelson, “Musk’s Stock-Option Tweet May Invite U.S. Labor Board Complaint,” Bloomberg, May 22, 2018, https://www.bloomberg.com/news/articles/2018-05-22/musk-s-stock-option-tweet-may-invite-u-s-labor-board-complaint.

11 Li Zhou, “Elon Musk and the Thai cave rescue: a tale of good intentions and bad tweets,” Vox, Jul. 18, 2018, https://www.vox.com/2018/7/18/17576302/elon-musk-thai-cave-rescue-submarine.

12 Ibid.

13 Ibid.

14 Ryan Mac, Mark Di Stefano, and John Paczkowski, “In A New Email, Elon Musk Accused A Cave Rescuer Of Being A ‘Child Rapist’ And Said He ‘Hopes’ There’s A Lawsuit,” Buzzfeed News, Sep. 4, 2018, https://www.buzzfeednews.com/article/ryanmac/elon-musk-thai-cave-rescuer-accusations-buzzfeed-email.

15 Drew Harwell,  Elon Musk sued by Thai-cave rescue volunteer he called a ‘child rapist’,” Washington Post, Sep. 17, 2018, https://www.washingtonpost.com/technology/2018/09/17/elon-musk-sued-defamation-by-thai-cave-rescue-volunteer-he-called-child-rapist/?utm_term=.0ee643e66148.

16 Marina Koren, “Elon Musk and the Meaning of ‘Off the Record’,” Atlantic, Sep. 6, 2018, https://www.theatlantic.com/technology/archive/2018/09/elon-musk-buzzfeed-off-the-record-vernon-unsworth/569437/.

17 “NYU Journalism Handbook for Students,” New York University, accessed Sep. 26, 2018, https://journalism.nyu.edu/about-us/resources/ethics-handbook-for-students/nyu-journalism-handbook-for-students/#human-sources-record.

18 Matthew Goldstein and Emily Flitter, “Tesla Chief Elon Musk Is Sued by S.E.C. in Move That Could Oust Him,” New York Times, Sep. 27, 2018, https://www.nytimes.com/2018/09/27/business/elon-musk-sec-lawsuit-tesla.html.

19 Ibid.

20 David Gelles, “Why Elon Musk Reversed Course on Taking Tesla Private,” New York Times, Aug. 25, 2018, https://www.nytimes.com/2018/08/25/business/elon-musk-tesla-private.html.

21 U.S. Securities and Exchange Commission, “Elon Musk Charged With Securities Fraud for Misleading Tweets,” Sep. 27, 2018, https://www.sec.gov/news/press-release/2018-219.

22 Ibid.

23 Ibid.

24 David Gelles, Mathew Goldstein, Emily Flitter, and Andrew Ross Sorkin, “Tesla’s Elon Musk Had a Deal From the S.E.C. It Fell Apart in a Morning.,” New York Times, Sep. 28, 2018, https://www.nytimes.com/2018/09/28/business/elon-musk-tesla-sec-deal.html.

25 Sean O’Kane, “Elon Musk forced to step down as chairman of Tesla, remains CEO,” Verge, Sep. 29, 2018, https://www.theverge.com/2018/9/29/17918252/elon-musk-tesla-sec-securities-fraud-lawsuit-settlement-fine-penalty.

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