Feds investigate Tesla’s use of funds for secret ‘glass house’ project

Manhattan federal prosecutors and the Securities and Exchange Commission are separately investigating the use of Tesla funds to bankroll a secret project that is described internally as a glass house for CEO Elon Musk, according to a report from the Wall Street Journal that cites people familiar with the matter.

WSJ reported in July that Tesla board members were investigating potential misuse of company resources on the project, known as “Project 42,” and whether Musk was personally involved. According to the newspaper, Project 42 involves a large glass structure to be built in Austin, Texas.

The U.S. Attorney’s Office for the Souther District of New York has reportedly sought information about what benefits have been paid to Musk, how much Tesla spent on the project, and what the project was for, WSJ’s sources said. The SEC, which sources say is seeking similar information, has opened a civil investigation into Project 42.

TechCrunch could not confirm the investigations with the SDNY or the SEC, and Tesla could not be reached to comment.

The SEC requires public companies to disclose transactions above $120,000 in which a related party has a material interest. The agency also requires any perks worth more than $10,000 paid to senior executive officers be disclosed to investors.

The cost of Project 42 could not be learned, but the glass building was to be built near Tesla’s Austin headquarters.

Musk and Tesla have invested heavily in Texas in recent years. Aside from personally moving to the state, Musk announced his decision to relocate Tesla headquarters from Palo Alto, California to Austin in October 2021 after a series of clashes with California’s “overregulation, overlitigation, overtaxation.” Texas doesn’t tax individual income or capital gains, a true draw for the world’s richest person.

Tesla also celebrated the opening of its Austin gigafactory in April 2022 with a so-called “Cyber Rodeo.” Earlier this year, Tesla said it had more than tripled its gigafactory workforce in Austin.

Tesla is facing separate investigations from the Department of Justice and the SEC into the automaker’s bold claims regarding the capabilities of Autopilot, Tesla’s advanced driver assistance system.

The EV maker has a fraught history with the SEC. The agency opened an investigation into Tesla after Musk tweeted in 2018 that he had  “funding secured” to take Tesla private (he didn’t), allegedly causing volatility in the share price. As part of a settlement with the SEC, Tesla and Musk both paid separate $20 million penalties, and Musk agreed to have a lawyer review his tweets. Musk has been trying to throw out the stipulation ever since, which he has referred to as a “muzzle” on his right to free speech.

In August, the SEC said investors who suffered financial losses as a result of the tweet might soon receive a payout from a $42.3 million fund established as part of the securities fraud settlement.