Billionaire inventor Elon Musk, founder of electric car pioneer Tesla, has been mired in quite a bit of controversy these days. There have been press battles, a notoriously combative earnings call, and escalating scrutiny of its automating capabilities, notably when it comes to steep production demands for its more mainstream-priced Model S.
Now, Musk and Tesla also facing the complications that come with a former employee turned Securities and Exchange Commission whistleblower.
Among the twists: Although the SEC’s whistleblower protocol is an anonymous process, the circumstances of the tip have been very public.
As reported by the Washington Post and other media sources on July 11, a former Tesla employee, Martin Tripp, who was fired by Tesla, has formally filed a whistleblower tip with the SEC, alleging the automaker lied to investors about material information. Among his allegations is that Tesla continues to use potentially hazardous, punctured batteries in its production process and is cutting corners by reusing previously scrapped parts to meet production demands.
Also in in line with concerns over the material information provided to investors, Tripp claims that Tesla inflated the number of Model 3 vehicles it was producing each week by as much as 44 percent.
The Post reports that Tripp has retained Stuart Meissner, the same New York attorney who represented an anonymous whistleblower in a 2016 case against Monsanto. That whistleblower won $22 million in that case, one of the largest payouts since the SEC began offering awards for actionable tips on securities laws violations.
For its part, prior to Tripp’s official SEC tip, Tesla accused him of being a corporate spy and saboteur and is suing him for at least $1 million in damages.
Musk detailed Tesla’s side of the story in a June 17 memo to employees that was eventually leaked online.
“I was dismayed to learn this weekend about a Tesla employee who had conducted quite extensive and damaging sabotage to our operations. This included making direct code changes to the Tesla Manufacturing Operating System under false usernames and exporting large amounts of highly sensitive Tesla data to unknown third parties,” Musk wrote.
The stated motivation, Musk claimed, was that the former employee wanted a promotion that he did not receive.
The memo goes on to suggest a bit of a martyr complex. “As you know, there are a long list of organizations that want Tesla to die,” Musk wrote. “These include Wall Street short-sellers, who have already lost billions of dollars and stand to lose a lot more. Then there are the oil and gas companies … they don’t love the idea of Tesla advancing the progress of solar power and electric cars. Don’t want to blow your mind, but rumor has it that those companies are sometimes not super nice.”
“Then there are the multitude of big gas/diesel car company competitors,” he added. “If they’re willing to cheat so much about emissions, maybe they’re willing to cheat in other ways?”
Although Tripp was not named in the memo, he was in a subsequent lawsuit filed on June 20 in U.S. District Court for the district of Nevada.
“Tesla has only begun to understand the full scope of Tripp’s illegal activity, but he has thus far admitted to writing software that hacked Tesla’s manufacturing operating system and to transferring several gigabytes of Tesla data to outside entities. This includes dozens of confidential photographs and a video of Tesla’s manufacturing systems,” Tesla claims in the lawsuit. “Beyond the misconduct to which Tripp admitted, he also wrote computer code to periodically export Tesla’s data off its network and into the hands of third parties. His hacking software was operating on three separate computer systems of other individuals at Tesla so that the data would be exported even after he left the company and so that those individuals would be falsely implicated as guilty parties.”
Tesla claims that Tripp violated an employment agreement covering the use of proprietary information and company trade secrets. Federal and state trade secrets laws are also cited as violations by the defendant.
Tripp has denied the allegations.
The SEC whistleblower complaint against Tesla raises interesting scenarios for both companies and tipsters. Among the questions raised, aside from the validity of either party’s claims, is whether a “reassignment” of Tripp’s position within the company constitutes either pretaliation or retaliation. The same goes for his termination. Also in play are direct e-mails from Musk to Tripp that could be considered as evidence of intimidation.
Under its whistleblower bounty program, authorized by the Dodd-Frank Act, a whistleblower is eligible for an award if original information provided to the SEC leads to a successful enforcement action. As the program has evolved, the Commission has sharpened its focus on retaliatory efforts that should be rectified for whistleblowers and are subject to corporate fines or other enforcement actions.
The additional message from the SEC over the years: It can not only bring an enforcement action when there is retaliation, it also has the authority to act against “pretaliation,” typically in the various confidentiality and severance agreements many companies require both incoming and outgoing employees to sign.
In April 2015, the SEC announced its first enforcement action against a company for, in its words, “using improperly restrictive language in confidentiality agreements with the potential to stifle the whistleblowing process.”
How—or if—any of these whistleblower initiatives will come to bear on Tripp’s compliant will, for now, remain a question addressed behind closed doors, despite a very public lawsuit and media volley.