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JPMorgan sues Tesla for $162 million after Musk tweets soured warrant deal

Published 11/15/2021, 06:49 PM
Updated 11/16/2021, 03:27 PM
© Reuters. FILE PHOTO: The logo of car manufacturer Tesla is seen at a branch office in Bern, Switzerland October 28, 2020. REUTERS/Arnd Wiegmann/File Photo/File Photo

© Reuters. FILE PHOTO: The logo of car manufacturer Tesla is seen at a branch office in Bern, Switzerland October 28, 2020. REUTERS/Arnd Wiegmann/File Photo/File Photo

By Jonathan Stempel

NEW YORK (Reuters) -JPMorgan Chase & Co has sued Tesla (NASDAQ:TSLA) Inc for $162.2 million, accusing Elon Musk's electric car company of "flagrantly" breaching a contract the two corporate giants agreed in 2014 relating to warrants Tesla sold to the bank.

Warrants give the holder the right to buy a company's stock at a set "strike" price and date. The suit, filed in a Manhattan federal court, centers on a dispute over how JPMorgan (NYSE:JPM) re-priced its Tesla warrants as a result of Musk's notorious 2018 tweet that he was considering taking the carmaker private.

It is unusual for a major Wall Street bank to sue such a high-profile client, although JPMorgan has done relatively little business with the electric carmaker over the past 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.

Tesla did not respond to requests for comment.

According to the complaint, Tesla in 2014 sold warrants to JPMorgan that would pay off if their "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 their price to protect both parties against the economic effects of "significant corporate transactions involving Tesla," such as an announcement the company was going private.

Musk's Aug. 7, 2018 tweet that he might take Tesla private at $420 per share and had "funding secured," and his subsequent announcement 17 days later that he was abandoning the plan, created significant volatility in the share price, the bank said. On both occasions, JPMorgan adjusted the strike price "to maintain the same fair market value" as prior to 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," the bank said.

© Reuters. FILE PHOTO: The logo of car manufacturer Tesla is seen at a branch office in Bern, Switzerland October 28, 2020. REUTERS/Arnd Wiegmann/File Photo/File Photo

Tesla in February 2019 complained that the bank's adjustments were "an opportunistic attempt to take advantage of changes in volatility in Tesla's stock," but did not challenge the underlying calculations, JPMorgan said.

Musk's tweets resulted in the U.S. Securities and Exchange Commission bringing civil charges and $20 million fines against both him and Tesla.

Latest comments

jp Morgan getting schooled is awesome, stick it to this bank. *******that Jamie diamond.
A crook is suing another crook.  Funny!
they are act and plan together. speculate together. Negative news is needed to drop $TSLA shares to $700-$770, then they will double together ~ 750 * 2 = $ 1500 in the middle of next year. after correction. You see, everything is easy. billionaires and banks are conspiring. Don’t worry, just buy stocks around $700, and wait , when they come up to $1500.
another news on sell entry
JP made their own trades with publically available information.
JP Morgan acted as an opportunist here. Musk took the risk. JPM manipulated the contractual clause, though in their right, not as a fairplay, and now want A piece of the pie for free.
Weird they had time to take this on when they are constantly rigging the silver market
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