Lawsuit against Elon Musk and Tesla: An Ethical Analysis

The article discusses the lawsuit filed against Elon Musk and Tesla by the SEC on the grounds of fraud. It analyzes the ethical concerns and issues of the case, including leadership and decision-making processes. The article also presents legal experts' views on the case and the implications of the lawsuit on Tesla's brand image.

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BUSINESS ETHICS
Name of the Student
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Author Note

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Introduction
The article contains the lawsuit that has been filed against Elon Musk and his
company Tesla by the U.S Securities and Exchange Commission (SEC) on 27th September
2018, on the grounds of committing fraud. In this essay, the arguments that have been made
in the article will be discussed along with the legal implications that are present in the news.
The key ethical concerns and issues of the article will be discussed further in this essay. The
study will contain the ethical decisions that have been made so far in the news along with a
recommendation about the most relevant ethical issue for the news which is aligned to the
moral philosophy of deontology.
Discussion
On the 27th of September, the Securities and Exchange Commission had filed a
lawsuit against the CEO of Tesla, Elon Musk, alleging that Elon Musk has committed fraud
by providing misleading and false statements in the month of August where he stated that he
would be taking the automaker private. SEC has stated that in the lawsuit that they have filed,
Elon Musk would be barred from being the director or the officer of a public company. On
the 7th of August, Elon Musk had stated that he had the required funding secured to convert
Tesla from a public company to a private company (Businessinsider.com.au 2018). He said
that he would make this conversion at $420 for every share and he only needed the vote of a
shareholder so that he could confirm the deal to make the company private. However, the
lawsuit mentioned that Musk did not have the required funding that he needed to make this
conversion and have also not spoken to any potential backers for the vote of conversion. The
terms of the conversion were that the share price would be $420 per share as proposed by
Musk and all the existing shareholders who are a part of Tesla would still remain associated
with the company even after it goes private.

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There have been many arguments regarding the lawsuit, however, the views of
three legal experts have been mentioned here. Firstly, Gregory Sichenzia who is a partner at
the law firm Sichenzia Ross Ference states certain facts about the case. Sichenzia says that
SEC had opened the investigation and filed the lawsuit both a great a great speed which has
surprised many people, however, the narrow subject of the investigation might have led to a
quick decision. Sichenzia also mentions that even though Tesla might be affected in the short
run, if they are able to hold their ground in the long run, the lawsuit would not be able to
influence their brand image. Sichenzia finally states that Elon Musk should not leave the
position as the CEO voluntarily since he is the best person for the job. Secondly, Jay Dubow
who is a partner at the law firm Pepper Hamilton state that the SEC might have been under
pressure to file the lawsuit quickly due to the high profile of Elon Musk. This is because if a
high profile CEO is served a lawsuit, then it will give a warning to the other companies and
their employees to not indulge in any unethical behaviour and practices. Additionally, Dubow
states that even though the lawsuit was made only against Elon Musk, the SEC could sue the
company Tesla in the future. Thirdly, Thomas Gorman who is a partner in the law firm
Dorsey and Whitney and a former senior counsel of the SEC first states that the lawsuit
should not have been filed by the SEC against Elon Musk, since the reported interest of the
Saudi Arabia Public Investment Fund towards the privatisation deal should have been a legal
proof of the statement that had been made by Musk. Furthermore, he says that if the SEC is
able to win the case against Elon Musk then they will be able to send a message to the other
organisations about the ability of the agency to punish companies for illegal and unethical
practices and activities. However, he does not believe that this lawsuit is a way of self-
promotion for SEC.
Based on the arguments and the article it can be determined that the key ethical
concern in this article is leadership (Frisch and Huppenbauer 2014). This is because an issue

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in leadership has led to the emergence of this lawsuit. The leader Elon Musk is said to have
been associated with unethical practices such as fraud which has led the SEC to file the
lawsuit against him. The news of secured funding was shared by him through his twitter
handle which was the base of the issue. The tweet was made by him on August 7 and a
second tweet was made on 25th August stating the company would continue to be public.
According to this tweet, the SEC stated that Musk knew from earlier that there was no
funding regarding this conversion, however, he still made the misleading statements which is
being considered as fraud towards the public and the stakeholders of the company. He has not
been able to maintain his position as a good leader and his actions have tarnished the name
and image of the company even if for a short term. The investors are currently questioning
the position and appointment of Elon Musk as the CEO of the company and whether it is
beneficial for the company or not. Therefore, his position as a leader is under the scrutiny of
several people. Elon Musk has earlier been the face of Tesla, however, it might become
difficult for him to gain investments and capital after the lawsuit since the trust on him would
be lost and his name would be associated with unethical practices. If the SEC becomes
successful in the lawsuit, Tesla might have to appoint a new boss in the near future.
Therefore, the most important ethical concern, in this case, is leadership which have been not
been able to properly implemented by Elon Musk which is being a good and successful
leader. The unethical practices that he might have committed might create a great impact on
the company in the long run, if they are not able to make their operations successful (Holland
and Albrecht 2013).
In the case, the SEC has asked for a settlement from Elon Musk in which Musk had to
pay a nominal fee to the SEC along with giving up his position as the chairman of the
company for a period of two years. However, Elon Musk declined this settlement with the
SEC. The deal was rejected by Musk, stating that he would not be able to stay truthful to

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himself if he agreed to settle with the SEC. The article has several ethical concerns, however,
the decisions that have been made against this case is not all appropriate even though some
are. The pace at which the SEC filed the lawsuit was very quick and more time should have
been invested in the investigation so that the right information might have been derived by
the SEC. Even though the SEC has filed the lawsuits based on the tweet that Musk had made
in August, they were unable to provide further strong proofs to support their claim. This is
why a deep investigation was required so that they would have strong proof to back their
lawsuit. Moreover, the settlement that the SEC had demanded was the removal of Elon Musk
from the role of chairman of Tesla which might be correct if they are able to prove the
allegations against Musk. If the allegations are true then Musk is not the right person to hold
the chair as the CEO of Tesla and a much qualified and deserving person should be
appointed. However, if Musk has not practised any unethical activity, then he should not
voluntarily leave the company before any concrete proof is derived by the SEC.
The ethical decision making process involves the choosing and the evaluating of
alternatives which would help the proper decision making which will align with ethical
principles. The decision making would consider the elimination of any unethical views or
options so that the final decision is free of any unethical practice. For an ethical decision
making a process have to be followed so that decision is constructed and correct. Firstly, the
facts have to be gathered regarding the issue and a deep investigation have to be conducted so
that there is several proof for the unethical aspect of the issue which will help in the decision
formation (Morales-Sánchez and Cabello-Medina 2013). Secondly, a prediction have to be
made of the issue based on the facts that have been collected. A prediction will help to reach
the desired result faster. Thirdly, the decisions should be formed keeping in mind that is for
the greater good of the people who are involved in the issue and there is no ethical concern
regarding the same. The decision would help to reach an ethical conclusion without having to

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indulge in any unethical practice. Lastly, the decision and the reasons for making the decision
have to be explained to the people who are involved in the issue (Schwartz 2016). This would
help them to get engaged to the ethical process and help them to form their own ethical
decisions in the future. The ethical decision making process would however, be different for
every issue and philosophy that is associated with the issue. In this context, the moral
philosophy of deontology is taken into consideration. Deontology is an approach in ethics
which focuses on the wrongness or the rightness of an action rather than the rightness or the
wrongness of the consequences of the action (Crossan, Mazutis and Seijts 2013). This means
that an issue is considered unethical if the action in itself is wrong irrespective of what the
consequence is. Even if the consequence of an action is right and the action is wrong then the
act is said to be unethical according to the philosophy of deontology. In such philosophies the
facts have to be gathered as well as the initial action which will help in the decision making
rather than the results and the consequences of the issue. The initial action will help to form
the decision based on the ethical aspect of the issue and situation.
Conclusion
Hence, it can be said that the article used in this essay has many ethical concerns such
as the lack of proper leadership and the initiation of a fraudulent act which has been created
by a misleading statement of Musk which has led to the lawsuit that has been filed by the
SEC. However, it should also be investigated on the part of SEC, whether the claims that
have been made by them is right or had Musk initially been able to secure the fund. Without
proper investigation, the lawsuit should not have been filed against Musk since the company
depends a lot on his leadership.

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References:
Businessinsider.com.au, 2018. Here's what legal experts are saying about the SEC's decision
to sue Elon Musk. [online] Business Insider Australia. Available at:
https://www.businessinsider.com.au/sec-lawsuit-against-elon-musk-legal-experts-weigh-in-
2018-9 [Accessed 29 Sep. 2018].
Crossan, M., Mazutis, D. and Seijts, G., 2013. In search of virtue: The role of virtues, values
and character strengths in ethical decision making. Journal of Business Ethics, 113(4),
pp.567-581.
Frisch, C. and Huppenbauer, M., 2014. New insights into ethical leadership: A qualitative
investigation of the experiences of executive ethical leaders. Journal of Business
Ethics, 123(1), pp.23-43.
Holland, D. and Albrecht, C., 2013. The worldwide academic field of business ethics:
Scholars’ perceptions of the most important issues. Journal of business ethics, 117(4),
pp.777-788.
Morales-Sánchez, R. and Cabello-Medina, C., 2013. The role of four universal moral
competencies in ethical decision-making. Journal of Business Ethics, 116(4), pp.717-734.
Schwartz, M.S., 2016. Ethical decision-making theory: An integrated approach. Journal of
Business Ethics, 139(4), pp.755-776.

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