A letter sent to Elon Musk's political committee by the US Department of Justice (DOJ) warns that his distribution of $1 million a day lottery prizes to registered voters may be illegal, UNN reports citing the BBC.
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Musk, who is the richest man in the world, is actively campaigning for Republican Donald Trump in his presidential race against Kamala Harris.
Over the weekend, the owner of Tesla and X/Twitter started giving away prizes to American voters who signed the petition.
It is unclear when the DOJ letter was sent to Musk's organization, America PAC. Justice Department investigators declined to comment on the case.
American media outlets, including CBS News, the BBC's American partner, reported on Wednesday that Musk's team was informed in a letter that the prize giveaway could violate federal election laws.
He was sent by the Department of Justice's Public Integrity Division after Democrats were outraged by the money stunt.
According to US law, it is illegal to pay people to register to vote. But it remains unclear whether the prank violates any laws.
Musk's contest offers money to signatories of a petition circulated by the PAC.
"We want to try to get more than a million, maybe 2 million voters in the contested states to sign a petition in support of the First and Second Amendments," Musk said on Saturday in Pennsylvania when he announced the event.
The contest rules state that the winners must be registered to vote, but no party affiliation is required.
"We are going to hand out $1 million randomly to the people who signed the petition every day from now until the election," he said.
The America PAC website states that the goal is to get "1 million registered voters in swing states to sign a petition in support of the Constitution, especially free speech and the right to bear arms.
It is open to voters in seven "swing" states - Pennsylvania, Georgia, Nevada, Arizona, Michigan, Wisconsin, and North Carolina. Election Day in the United States is November 5.
On Tuesday, a group of former Republican prosecutors wrote to the Justice Department urging officials to investigate the contest.
"We know of nothing like this in modern political history," they wrote, pointing to potential violations of federal and state laws.
Earlier, Musk rejected claims that the contest was illegal, saying: "You can be from any political party or no political party, and you don't even have to vote.
On Sunday, the contest changed its rules to call the money pay for performance, according to CNN.