Jpmorgan Sues Tesla for $162 Million Over Warrants Musk Tweets

Tesla Inc. has been sued for $162 million by JPMorgan Chase & Co who accused Elon Musk’s electric car company of violating a contract “flagrantly” that had been agreed in 2014 between the two giant companies about the warrants that Tesla sold off to the bank.

What Kind of Power Warrants Hold?

Warrants entitle the holder to buy a company’s stock at a fixed “strike” price and date. The lawsuit that has been filed in Manhattan federal court follows around a tiff over how due to the notorious 2018 tweet of Musk that he was planning to take the carmaker private, led JPMorgan to re-price its Tesla warrants.

For a major Wall Street Bank, suing such a high-profile client is quite unusual. However, as per Tesla’s filings and Refinitiv data, in the last seven years, JPMorgan has not done much business with Tesla Inc.

Even After Providing Many Opportunities, Tesla Didn’t Respond

In a statement, JPMorgan‘s spokesperson said “We have provided Tesla multiple opportunities to fulfill its contractual obligations, so it is unfortunate that they have forced this issue into litigation.”

Upon requests for remarks, no response was received from Tesla.

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In 2014, JPMorgan was sold off warrants by Tesla that would pay up when the warrants expired in June and July 2021 if their “strike” price was below the share price of Tesla, according to the complaint.

Certain standard provisions in Warrants entitled it for the price adjustment to secure both sides from the financial effects of “significant corporate transactions involving Tesla,” like an announcement that the company is going private, JPMorgan said.


Musk’s Tweets Resulted in Volatility in Tesla’s Share Price

The bank said that Musk’s 7th August 2018 tweet mentioned that at $420 per share, he might take Tesla private and had “funding secured,” and the announcement by him after 17 days of a tweet that he is canceling the plan had resulted in some considerable variability in Tesla’s share price.

In both situations, the strike price had to be adjusted by JPMorgan “to maintain the same fair market value” as before the tweets.

By the time warrants expired this year, the share price of the electric car maker increased nearly 10 times and JPMorgan claimed that as per contract, Tesla was required to transfer shares of its stock or cash, and Tesla’s failure of doing that led to default, the bank said.

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According to the complaint, “Though JPMorgan’s adjustments were appropriate and contractually required.” The bank said Tesla has flagrantly ignored its clear contractual obligation to pay JPMorgan in full.”

Elon Musk Was Charged With a Penalty of $20 Million

JPMorgan said that in February 2019, Tesla complained that the adjustments by the bank were “an opportunistic attempt to take advantage of changes in volatility in Tesla’s stock,” but did not oppose the underlying calculations.

The U.S Securities and Exchange Commission had brought civil charges and a penalty of $20 million against Musk and Tesla both as a result of his tweets.

Tesla owes JPMorgan 228,775 shares worth $162.2 million which were due on August 5, 2021. On Monday, the closing price of Tesla’s shares was $1,013.39.


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