JPMorgan Sues Tesla for $162 million
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Elon Musk's statements that he would take Tesla private cost an investment bank millions of dollars, leading them to sue the tech mogul.
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US Securities and Exchange Commission has filed civil charges against him and Tesla
JPMorgan Chase & Co has filed a $162.2 million lawsuit against Tesla Inc, accusing Elon Musk's electric vehicle business of "flagrantly" breaching a 2014 agreement between the two corporate behemoths regarding warrants Tesla issued to the bank.
Warrants allow the holder to purchase a company's stock at a predetermined "strike" price and date. The lawsuit, which was filed in a federal court in Manhattan, focuses on JPMorgan's re-pricing of its Tesla warrants in the wake of Musk's controversial 2018 tweet indicating he was considering taking the company private.
It is rare for a large Wall Street bank to sue such a high-profile client, despite having done very little business with the electric carmaker over the previous seven years according to Tesla's filings and Refinitiv data.
"We have provided Tesla multiple opportunities to fulfill its contractual obligations, so it is unfortunate that they have forced this issue into litigation," a spokesperson for JPMorgan said in a statement.
No comment from Tesla
According to the complaint, Tesla offered JPMorgan warrants in 2014 that would pay off if their "strike" price was less than Tesla's stock price when the options expired in June and July 2021.
The warrants, according to JPMorgan, had typical provisions that allowed it to modify its price to shield both parties from the economic effects of "significant corporate transactions involving Tesla," such as the company's announcement of going private.
According to the bank, Musk's Aug. 7, 2018 tweet suggesting he might take Tesla private at $420 per share with "funding secured" and his subsequent revelation 17 days later that he was abandoning the plan caused significant volatility in the stock price.
JPMorgan modified the strike price on both occasions "to maintain the same fair market value" as before the tweets.
Tesla's share price rose approximately 10-fold by the time the warrants expired this year, and JPMorgan said this required Tesla under its contract to hand over shares of its stock or cash. The bank said Tesla's failure to do that amounted to a default.
"Though JPMorgan's adjustments were appropriate and contractually required," the complaint said, "Tesla has flagrantly ignored its clear contractual obligation to pay JPMorgan in full."
Tesla protested in February 2019 that the bank's revisions were "an opportunistic attempt to take advantage of swings in volatility in Tesla's shares," but JPMorgan claimed Tesla did not approach the underlying calculations.
As a result of Musk's tweets, the US Securities and Exchange Commission has filed civil charges against him and his company, in addition to fining him $20 million.
