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Elon Musk’s SpaceX is robbing Chinese investors directly of money, according to previously sealed testimony, raising a new question about foreign ownership to one of the most important military contractors in the United States.
Recent testimony from SpaceX Insider at the time of the trial shows that China’s direct investment in private companies was first disclosed. Although US military contractors’ ownership in China is not prohibited, such investments are heavily regulated, and this issue is treated as a significant national security concern by the US government.
“They clearly have Chinese investors, honestly,” SpaceX’s leading investor Iqbaljit Kahlon added in a deposit last year that some were “direct to the cap table.” “Cap Table” refers to the company’s capital table that lists shareholders.
Kahlon’s testimony does not reveal the scope of China’s investments in SpaceX or the investor’s identity. Kahlon has long been approaching the company’s leadership, running his own company acting as an intermediary for wealthy investors looking to buy shares in SpaceX.
SpaceX keeps its complete ownership structure a secret. It has been previously reported that some Chinese investors purchased indirect investments from SpaceX and invested in Middleman funds to own shares in the Rocket Company. The new testimony describes direct investments that suggest a close relationship with SpaceX.
SpaceX thrived as it snapped up sensitive US government contracts, from building the Pentagon spy satellite to launching NASA spacecraft. The US Embassy and the White House are also connected to the company’s StarLink Internet Services. About 42% stake in Musk’s company is worth an estimated $168 billion. If he had no other ownership, he would be one of the 10 richest people in the world.
National Security Law experts said federal authorities are deeply interested in understanding China’s direct investment in SpaceX. They said it would depend on the details whether or not there is a source of concern, but the US government argued that China has a systematic strategy of using investments in sensitive industries to espionage.
If investors have access to private information about the company (e.g., details of its contract or supply chain) it could be useful for China’s intelligence newsletter, said Sarabauardanzman, a professor at Indiana University who scrutinised foreign investment at the State Department. It “when recognized, it will create a huge risk of having great national security consequences,” she said.
SpaceX did not respond to questions about this story. Carlon declined to comment.
The new court records come from a Delaware lawsuit between Caron and another investor. The testimony was sealed down to Propobrica, with the support of the Press Freedom and lawyers of Sho Keller, a law firm. SpaceX fought the effort, but the judge ruled that a portion of the record must be made public. Kahlon’s testimony was released this week.
Buying shares on SpaceX is much more difficult than buying some of the publicly available companies like Tesla or Microsoft. SpaceX controls who can buy stocks from it, and its investors fall into different categories. The rarest group is the direct investors who actually own SpaceX shares. The group includes funds led by Carlon, Peter Tiel and several other venture capitalists with personal ties to Musk. Then there are indirect investors. They effectively buy SpaceX stocks through intermediaries like Caron. (Indirect investors actually buy into funds run by intermediaries, and usually pay large fees.) All Chinese investors previously known on SpaceX have fallen into the latter category.
This year, Propublica reported on the unusual features of SpaceX’s approach to investment from China. Delaware testimony states that the company is allowing Chinese investors to buy shares in SpaceX as long as they pass through the Cayman Islands or other offshore secret hubs. Companies will only actively report Chinese investment to the government in limited circumstances, and there are no difficult and fast rules as to how much is too much.
Following the Propublica report, House Democrats sent a letter to Defense Secretary Pete Hegses, raising an alarm about the company’s “potential obfuscation.” “In light of the extreme sensitivity of DOD and NASA’s SpaceX work, this lack of transparency raises serious questions,” they write. It is unknown if the action was performed accordingly.
Kahlon has turned access to SpaceX stock into a lucrative business. His list of investors is read like atlas of the world. The investors’ names have recently been edited in unsealed documents, but their addresses range from Chile to Malaysia. One is in Russia. At least two are located in mainland China. One is in Qatar. (In one email to SpaceX’s Chief Financial Officer, Kahlon said the Los Angeles-based fund has funds from the Qatar royal family and has already been invested in SpaceX.)
The China-based financial institution wrote to Carlon four years ago. “Something like that. SpaceX was a gift that keeps giving,” Kahlon replied. “thank you very much.”
According to court records, Carlon first met SpaceX when he was a fledgling startup. SpaceX’s CFO Bret Johnsen was there for 14 years, but Kahlon testified that he “was with the company for longer or in fashion than I did.” Johnsen also testified that SpaceX does not have formal policies regarding accepting investment from countries considered enemies by the US government. However, he told the fund manager “I ask him to “remove from ownership of Russian, Chinese, Iran, North Korea and North Korea.”
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By 2021, there are indications that Carlon was wary of raising funds from China. The US government is increasingly concerned about China’s investment in high-tech companies, and in June Carron told his associates he was “noisy” with people he would make to buy at the new SpaceX opportunity. “Only people I want to be involved in for the long term. There’s no one in mainland China,” Carlon said.
But those concerns seemed to fade away when he competed to gather a pool of investors. By November 2021, Carlon had personally raised funds from China to purchase the SpaceX Stakes. He told the Shanghai-based company that if it invested in him, he would get quarterly updates on SpaceX’s business development, “visits to SpaceX, interview opportunities with SpaceX CFOs.”
According to court records, the Shanghai company ultimately sent Kahlon $50 million to invest in Musk’s business. SpaceX cancelled the transaction after the plans were published.
Is there any information you need to know about Elon Musk’s business? Justin Elliott can be contacted by email at justin@propublica.org at Signal or WhatsApp at 774-826-6240. Josh Kaplan can be contacted by email at joshua.kaplan@propublica.org at 734-834-9383.
Alex Mierjeski contributed to his research.
