JPMorgan Chase & Co sued Tesla Inc for 162.2 million dollars, accusing Elon Musk’s electric car maker of ‘flagrantly’ breaching a contract the two agreed to in 2014 , in connection with the warrants that Tesla sold to the bank.
Elon Musk’s tweet that caused volatility in Tesla shares
Warrants grant the holder the right to buy shares in a company at a specified price and date. The lawsuit, filed in federal court in Manhattan, centers on a dispute over how JPMorgan revised the price of its Tesla warrants, as a result of a 2018 tweet from Musk, in which he said he was considering taking the company’s shares off the stock market. It’s unusual for a large Wall Street bank to sue such a high-profile client. “We have provided Tesla with multiple opportunities to meet its contractual obligations, so it is unfortunate that they have forced this matter into litigation,” a JPMorgan spokesperson said in a statement. Tesla did not respond to requests for comment. According to the lawsuit, Tesla sold warrants to JPMorgan in 2014 that would be paid if the ‘strike’ price was below Tesla’s share price when the warrants expired in June and July 2021. JPMorgan said the warrants contained standard provisions that allowed it to adjust its price to protect both parties against the economic effects of ‘significant corporate transactions involving Tesla’, such as an announcement that the company was going public.
Musk’s tweet on August 7, 2018, saying he could take Tesla out of the stock market by paying $ 420 per share and that he had ‘secured funding’, and his subsequent announcement 17 days after he abandoned the plan, created a significant volatility in the share price said the bank. On both occasions, JPMorgan adjusted the share price “to maintain the same fair market value” as before the tweets. Tesla’s stock price increased roughly 10-fold by the time the warrants expired this year, and JPMorgan said this required Tesla, under its contract, to deliver stocks or cash. The bank said that Tesla’s failure to do so amounted to a default. “Although JPMorgan’s adjustments were appropriate and contractually required,” the complaint said, “Tesla has flagrantly ignored its clear contractual obligation to pay JPMorgan in full,” the bank said. Tesla in February 2019 complained that the bank’s adjustments were “an opportunistic attempt to take advantage of changes in the volatility of Tesla shares,” but did not contest the underlying calculations, JPMorgan said. Musk’s tweets prompted the U.S. Securities and Exchange Commission (SEC) to file civil charges and set fines of $ 20 million against both him and Tesla.