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How Elon Musk’s SpaceX Secretly Allows Investment From China
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Elon Musk’s aerospace giant SpaceX allows investors from China to buy stakes in the company as long as the funds are routed through the Cayman Islands or other offshore secrecy hubs, according to previously unreported court records.
The rare picture of SpaceX’s approach recently emerged in an under-the-radar corporate dispute in Delaware. Both SpaceX’s chief financial officer and Iqbaljit Kahlon, a major investor, were forced to testify in the case.
In December, Kahlon testified that SpaceX prefers to avoid investors from China because it is a defense contractor. There is a major exception though, he said: SpaceX finds it “acceptable” for Chinese investors to buy into the company through offshore vehicles.
“The primary mechanism is that those investors would come through intermediate entities that they would create or others would create,” Kahlon said. “Typically they would set up BVI structures or Cayman structures or Hong Kong structures and various other ones,” he added, using the acronym for the British Virgin Islands. Offshore vehicles are often used to keep investors anonymous.
Experts called SpaceX’s approach unusual, saying they were troubled by the possibility that a defense contractor would take active steps to conceal foreign ownership interests.
Kahlon, who has long been close to the company’s leadership, has said he owns billions of dollars of SpaceX stock. His investment firm also acts as a middleman, raising money from investors to buy highly sought SpaceX shares. He has routed money from China through the Caribbean to buy stakes in SpaceX multiple times, according to the court filings.
The legal dispute centers on an aborted 2021 deal, when SpaceX executives grew angry after news broke that a Chinese firm was going to buy $50 million of the company’s stock. SpaceX then had the purchase canceled. In separate testimony, the rocket company’s CFO explained that the media coverage was “not helpful for our company as a government contractor.” SpaceX’s business is built on those contracts, with the U.S. government paying the company billions to handle sensitive work like building a classified spy satellite network.
Get in TouchDo you have any information we should know about Elon Musk’s businesses? Josh Kaplan can be reached by email at joshua.kaplan@propublica.org and by Signal or WhatsApp at 734-834-9383. Justin Elliott can be reached by email at justin@propublica.org and by Signal or WhatsApp at 774-826-6240.
Company executives were concerned that coverage of the deal could lead to problems with national security regulators in the U.S., according to Kahlon’s testimony and a filing from his attorneys.
SpaceX, which also launches rockets for NASA and sells satellite internet service, is perhaps the most important pillar of Musk’s fortune. His estimated 42% stake in the company is valued at around $150 billion. If he owned nothing else, he’d still be richer than Bill Gates.
Federal law gives regulators broad power to oversee foreign investments in tech companies and defense contractors. Companies only have to proactively report Chinese investments in limited circumstances, and there aren’t hard and fast rules for how much is too much. However, the government can initiate investigations and then block or reverse transactions they deem a national security threat. That authority typically does not apply to purely passive investments in which a foreign investor is buying only a small slice of a company. But experts said that federal officials regularly ask companies to add up Chinese investments into an aggregate total.
The U.S. government charges that China has a systematic strategy of using even minority investments to secure leverage over companies in sensitive industries, as well as to gain privileged access to information about cutting-edge technology. U.S. regulators view even private investors in China as potential agents of the country’s government, experts said.
The new materials do not contain allegations that the Chinese investments in SpaceX would violate the law or were directed by the Chinese government. The company did not respond to detailed questions from ProPublica. Kahlon declined to comment on the reasons for SpaceX’s approach.
It’s not uncommon for foreigners to buy U.S. stock through a vehicle in the Cayman Islands, often to save money on taxes. But experts said it was strange for the party on the other side of a deal — the U.S. company — to prefer such an arrangement.
ProPublica spoke to 13 national security lawyers, corporate attorneys and experts in Chinese finance about the SpaceX testimony. Twelve said they had never heard of a U.S. company with such a requirement and could not think of a purpose for it besides concealing Chinese ownership in SpaceX. The 13th said they had heard of companies adopting the practice as a way to hide foreign investment.
“It is certainly a policy of obfuscation,” Andrew Verstein, a UCLA law professor who has studied defense contractors, said of the SpaceX testimony. “It hints at potentially serious problems. We count on companies to be forthright with the government about whether they’ve taken money from America’s rivals.”
The new material adds to the questions surrounding Musk’s extensive ties with China, which have taken a new urgency since the world’s richest man joined the Trump White House. Musk has regularly met with Communist Party officials in China to discuss his business interests in the country, which is where about half of Tesla cars are built.
Last week, The New York Times reported that Musk was scheduled to get a briefing on secret plans for potential war between China and the U.S. The Times later reported that the briefing was called off, and Trump denied it had ever been scheduled. The president told reporters it would be wrong to show the war plans to the businessman: “Elon has businesses in China, and he would be susceptible perhaps to that,” Trump said.
The Delaware court records reveal SpaceX insiders’ intense preoccupation with secrecy when it comes to China and detail a network of independent middlemen peddling SpaceX shares to eager Chinese investors. (Unlike a public company, SpaceX exercises significant control over who can buy into the company, with the ability to block sales even between outside parties.)
But the case leaves unanswered the question of exactly what percentage of SpaceX is owned by Chinese investors.
The Financial Times recently reported that Chinese investors had managed to acquire small amounts of SpaceX stock and that they were turning to offshore vehicles to do so. The deals were structured to limit the information investors receive, the outlet said. The Delaware records reveal additional, previously unreported Chinese investments in SpaceX but do not say how much they were worth. The few Chinese investments in SpaceX where a dollar figure is publicly known total well under $100 million.
The experts said the court testimony is puzzling enough that it raises the possibility that SpaceX has more substantial ties to China than are publicly known and is working to mask them from U.S. regulators. A more innocent explanation, they said, is that SpaceX is seeking to avoid scrutiny of perfectly legal investments by the media or Congress.
Once a welcome source of cash, Chinese investment in Silicon Valley has become the subject of intense debate in Washington as hostility between the two countries deepened in recent years. Corporate lawyers told ProPublica they’d counsel their clients against requiring the use of offshore vehicles because it could make it look like they are trying to hide something from the government.
Bret Johnsen, the SpaceX CFO, testified in the Delaware dispute that the company does not have a formal policy about accepting investments from countries deemed adversaries by the U.S. government. Rather, he said, SpaceX has “preferences that kind of feel like a policy.” Sensitive to how such financial ties could make it “more challenging to win government contracts,” Johnsen said that he asks fund managers to “stay away from Russian, Chinese, Iranian, North Korean ownership interest.”
In the public portion of his deposition, Johnsen wasn’t asked whether routing Chinese money offshore made such investments acceptable to SpaceX. But he lent credibility to Kahlon, the investor who said that was enough to get the green light. Johnsen said that he has a long-standing personal relationship with Kahlon and that he’s discussed the company’s approach to Chinese ownership with him. The CFO added that he trusts Kahlon to bring in only investors that the company approves of.
Over the years, Kahlon has personally helped Chinese investors buy stakes in SpaceX on “a number of occasions” through “proxies such as British Virgin Islands- or Cayman Islands-based entities,” according to a filing from his lawyers. He also knows of “many” other Chinese investors who own SpaceX shares, the filing said. He learned about them through conversations with investors and brokers, as well “from having viewed investor lists.”
Kahlon is a consummate SpaceX insider. He “has been with the company in one form or fashion longer than I have,” said Johnsen, who’s worked at SpaceX for 14 years. Early in his career, Kahlon worked for Peter Thiel at the same venture capital firm that once employed JD Vance, and he first met with SpaceX around 2007 a few years after it was founded.
Kahlon eventually opened his own firm called Tomales Bay Capital, becoming a major player among the middlemen who cater to would-be investors in SpaceX. He’s helped people like former Education Secretary Betsy DeVos buy pieces of the rocket company. He also said he has served as a “back channel” between SpaceX and international regulators as the company sought to bring its satellite internet products to countries like India.
Kahlon and Johnsen were forced to testify after the deal with a Chinese firm fell apart in late 2021, sparking years of litigation. That year, Kahlon had the opportunity to buy more than half a billion dollars of SpaceX stock from a West Palm Beach private equity firm. Kahlon had already brought Chinese money into SpaceX before, he testified, and he again turned to China as he gathered funds to purchase the stake.
Kahlon soon connected with a Shanghai-based company called Leo Group, short for “Love Each Other.” As Kahlon made his pitch during their first call, Leo was told that “it would be best not to disclose the name of SpaceX,” an executive at the Chinese company later testified. “They deemed that information to be quite sensitive.”
Leo quickly sent Kahlon $50 million. He then messaged another business associate in China: “Have any folks interested in spcex still?”
Kahlon testified that he was planning to tell Johnsen about the Leo investment and expected the CFO to sign off on it. But the deal blew up after Leo mentioned SpaceX in a regulatory filing that generated widespread coverage in the Chinese business press. (Whether Leo had Kahlon’s permission to make the disclosure is a matter of dispute.) In a panic, Kahlon enlisted a Leo vice president to try to get the articles taken down. But when Johnsen and Tim Hughes, SpaceX’s top in-house lobbyist, spotted the stories, they grew alarmed.
“This is not helpful for our company as a government contractor,” the SpaceX CFO later testified regarding the press attention. “It, in essence, arms our competitors with something to use as a narrative against us.”
“In my entire professional career, this was literally the worst situation that I’ve been in,” Kahlon said. “I failed at what I thought was a core responsibility in the relationship we had.”
SpaceX ultimately decided to let Kahlon buy only a smaller portion of the stake, purchasing much of the half-billion dollar investment itself. According to contemporaneous messages and testimony from Kahlon, he was told that decision was made by Musk. However, Kahlon continued to have a strong relationship with SpaceX after the mishap, court records say, with the company allowing his firm to keep buying a large quantity of shares.
Musk’s business interests in China extend far beyond SpaceX’s ownership structure — a fact that has drawn criticism from Republican lawmakers over the years. In 2022, after Tesla opened a showroom in the Chinese region where the government runs Uyghur internment camps, then-Sen. Marco Rubio tweeted, “Nationless corporations are helping the Chinese Communist Party cover up genocide.”
In addition to Tesla’s sprawling factory in Shanghai, last year, almost 40% of Tesla’s sales were to Chinese customers. The company has also secured major tax breaks and regulatory victories in the country. In 2019, the Chinese premier offered Musk the country’s equivalent of a green card.
In recent years, the billionaire has offered sympathetic remarks about China’s desire to reclaim Taiwan and lavished praise on the government. “My experience with the government of China is that they actually are very responsive to the people,” Musk said toward the end of Trump’s first term. “In fact, possibly more responsive to the happiness of people than in the U.S.”
Do you have any information we should know about Elon Musk’s businesses? Josh Kaplan can be reached by email at joshua.kaplan@propublica.org and by Signal or WhatsApp at 734-834-9383. Justin Elliott can be reached by email at justin@propublica.org and by Signal or WhatsApp at 774-826-6240.
Alex Mierjeski contributed research.
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TCE Is Linked to Heart Defects in Babies, Cancer and Parkinson’s. Republicans in Congress Want to Reverse a Ban on It.
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Although it was too late for him to benefit, Daniel Kinel felt relieved in December when the Environmental Protection Agency finally banned TCE. The compound, which has been used for dry cleaning, manufacturing and degreasing machines, can cause cancer, organ damage and a potentially fatal heart defect in babies, according to independent studies and the EPA. It has also been shown to greatly increase people’s chances of developing Parkinson’s disease.
Kinel and three of his colleagues were diagnosed with Parkinson’s disease. They all worked in a law office in Rochester, New York, that sat next to a dry cleaner that had dumped TCE into the soil. Kinel was diagnosed with the neurodegenerative condition at age 43, after working there for seven years. His three colleagues have since died. At least 15 of the firm’s partners developed cancers related to TCE.
“It felt good that we were finally getting rid of this terrible chemical,” said Kinel, whose symptoms now make it impossible to type, write or work as a lawyer. “My children and grandchildren would be protected.”
But his feeling of solace has been short-lived.
The ban has been challenged on multiple fronts since President Donald Trump assumed office for a second time in January. Republicans in the Senate and House introduced resolutions to repeal the ban, which was vulnerable to being overturned through the Congressional Review Act because it was issued shortly before the inauguration. Meanwhile, companies and trade groups have sued to stop the ban in court. A Trump executive order delayed the implementation of the ban until March 21. And last week, the EPA asked a federal appeals court to further delay the ban until the end of May.
TCE, short for trichloroethylene, is one of five toxic substances for which full or partial bans put in place by the EPA under President Joe Biden are now under threat. The Trump administration told the courts that it wants to review all five bans to determine whether they should be rolled back. Those banned substances include a deadly paint stripper called methylene chloride; PCE, a solvent that’s similar to TCE; carbon tetrachloride, which is used as a cleaning fluid; and the cancer-causing mineral asbestos. David Fotouhi, the lawyer Trump nominated to be second-in-command of the agency, tried to overturn the asbestos ban in October, when he was serving as an attorney for a group of car companies. The EPA classifies all of the recently banned chemicals as either carcinogenic or probably carcinogenic to humans.
But the EPA’s ban on TCE is in greater peril than the rest because it has yet to take effect. The prohibition on the chemical was to begin this year for all consumer uses and many industrial and commercial uses. The EPA allowed a more gradual phasing out for more than a dozen industrial uses, such as for some aerospace and defense applications. In those cases, the Biden EPA required employers to provide health protections for workers who come into contact with TCE. The Trump EPA’s recent petition to the federal appeals court to extend the ban’s delay would also mean that employers would not be required to implement the new health protections for workers.
Delaying the ban means that people will continue to be exposed to the chemical, which causes liver cancer, kidney cancer and non-Hodgkin lymphoma, as well as holes in infants’ hearts that can be fatal. While safer alternatives now exist for many of its uses, TCE has seeped into the drinking water of more than 17 million people in the U.S., according to data compiled by the nonprofit Environmental Working Group. Dangerous plumes of TCE have been identified in Woburn, Massachusetts; Wichita, Kansas; and Camp Lejeune Marine Corps base in North Carolina, where hundreds of service members developed Parkinson’s disease and cancer. There is another TCE plume on Long Island in New York, in the district abutting the one that EPA Administrator Lee Zeldin represented in Congress.
The idea that people will still be exposed to TCE infuriates Jerry Ensminger. This chemical “needs to go away,” said the retired Marine Corps master sergeant who’s an outspoken advocate for military families exposed to TCE. Ensminger’s daughter Janey died from leukemia when she was 9; Ensminger said Janey was conceived at Camp Lejeune and the family lived there during most of the pregnancy’s first trimester, then returned when she was 6. Ensminger recalled seeing workers on the base dip truck engines into vast metal vats of TCE in the late 1970s and early 1980s.
Scientists began raising concerns about the toxicity of TCE almost a century ago. The EPA’s work on the chemical proceeded slowly. In 1987, it deemed TCE a “probable human carcinogen.” In 2001, a draft EPA assessment found the chemical to be more toxic than previously thought and highly likely to cause cancer. The conclusion came under attack from some industry and government scientists. The Department of Defense, which is responsible for hundreds of TCE-contaminated sites, criticized the report as based on “junk science.” Two reviews by panels of independent scientists, however, found the assessment was sound. Still, the EPA didn’t begin drafting stricter regulations on TCE until the end of President Barack Obama’s administration.
Those efforts were dealt a blow during Trump’s first term when the EPA weakened a report on TCE’s effects on fetal heart abnormalities and stopped work on the new regulations. Nancy Beck, who before joining the first Trump administration had been a high-level lobbyist for the American Chemistry Council, an industry trade group, presided over the EPA’s chemical program when it pulled back from the TCE ban and, more broadly, retreated from rules that the chemical industry saw as burdensome.
After returning to the private sector, Beck was recently named the principal deputy assistant administrator in the EPA’s office of chemical safety and pollution prevention. She did not respond to requests for comment.
Her appointment has left environmentalists despairing over the fate of the long-awaited TCE ban.
“The same industry lobbyist who was in charge of EPA’s chemical program before is in charge of it again,” said Daniel Rosenberg, director of federal toxics policy at the Natural Resources Defense Council. “When she was there the first time, she moved heaven and earth to weaken the evaluation of the chemical and downplay the hazard TCE posed to people’s health. That appears to be where this is headed again.”
More than 100 groups representing public health, environment and community interests recently sent a letter to Zeldin urging him to reinstate the TCE ban. Referencing Zeldin’s proclaimed interest in clean water for every American, the letter noted that the EPA estimated its rule would produce $20 million in health benefits from reduced cancer rates and said that “delaying implementation of these rules will lead to preventable death, disease and incapacitation and increase medical costs and hardships to families and communities.” This week, environmental and labor groups filed a court brief opposing the EPA’s efforts to delay implementation of the TCE ban.
The EPA did not respond to questions about the TCE ban. Sen. John Kennedy, R-La., who introduced the resolution to repeal the TCE ban in the Senate, and Reps. Mariannette Miller-Meeks, R-Iowa, and Diana Harshbarger, R-Tenn., who introduced a resolution for its repeal in the House, also did not respond to inquiries from ProPublica. A spokesperson from the American Chemistry Council referred ProPublica to its press release from December, which acknowledged that the EPA had included “important adjustments” in the TCE ban to provide flexibility to affected industries.
In a press release about his bid to repeal the ban, Kennedy said that the “Biden administration waged war against America’s chemical producers,” and he urged Congress to “move quickly to take off the handcuffs that President Biden placed on Louisiana and U.S. businesses.” In the same release, Harshbarger described the TCE ban as “one of many examples of the Biden Administration’s overregulation.”
In a hearing about chemical regulation in the House in January, Harshbarger said that a company in her district, Microporous, which makes membranes used in lithium-ion batteries, is facing an “existential threat” from the TCE ban. The ban made an exception for the use of TCE for this purpose, allowing the battery industry to continue using it until 2044. Microporous, which has challenged the ban in court, did not respond to a question about why it needed 20 years to find a suitable replacement for TCE.
Since Trump’s inauguration, the EPA has been touting its efforts to roll back environmental protections. Earlier this month, the agency announced the “most consequential day of deregulation in U.S. history,” listing 31 rules it planned to step away from, related to oil and gas, air pollution and greenhouse gases. The agency celebrated the announcement with a 6,500-word press release that included praise from 61 industry leaders, CEOs and Republican politicians.
Still, some who have been focused on TCE were surprised that the Trump administration was delaying and reconsidering the recent ban. “I thought it was a done deal,” said Dr. Sara Whittingham, a retired United States Air Force flight surgeon who was diagnosed with Parkinson’s disease at 46. When she heard that the rule might be repealed, she was aghast. “What the heck, how can nobody care about this?” she said. “This should be a nonpartisan issue.”
Whittingham believes her disease may stem from the two years she spent as an aircraft maintenance officer at Kelly Air Force Base in San Antonio, Texas, from 1996 to 1998. Her office was above a shop where workers used TCE to clean engine parts.
Last week, Whittingham teamed up with two friends, both Air Force graduates who were diagnosed with Parkinson’s as women in their 40s, to urge people to pressure Congress to drop the resolutions.
“We signed up to go fight for our country,” she said, but now the attitude seems to be, “‘We don’t care about your health, you’ve already signed on the dotted line.’ It’s a kind of a kick in the face.”
Before being diagnosed with Parkinson’s, Whittingham had hoped that her children would follow her career path. But recently she discouraged her daughter, who is a senior in high school, from joining the military. The health risks, she said, were too high.