JPMorgan sues Tesla for $162 million after warrant deal sours after Musk’s tweet

According to the complaint, Tesla sold warrants in 2014 to JPMorgan, which will pay if their “strike” price is less than Tesla’s share price when the warrants expire in June and July 2021.



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Warrants give the holder the right to purchase a company’s stock at a specified “strike” price and date.

JPMorgan Chase & Co. has sued Tesla Inc. for $162.2 million, accusing Elon Musk’s electric car company of “explicitly” breaching the contract the two corporate giants sold to the bank in 2014 The contract was related to Tesla’s warrant.

Warrants give the holder the right to purchase a company’s stock at a specified “strike” price and date. The lawsuit, filed in Manhattan federal court, focused on a dispute over how JPMorgan re-priced its Tesla warrants as a result of Musk’s infamous 2018 tweet that it was considering taking the carmaker private.

It’s unusual for a major Wall Street bank to sue such a high-profile client, according to Tesla filings and Refinitiv data, although JPMorgan has done relatively little business with the electric carmaker over the past seven years.

“We have provided Tesla with multiple opportunities to meet its contractual obligations, so it is unfortunate that they have put this issue on litigation,” a JPMorgan spokesperson said in a statement.

Tesla did not respond to requests for comment.

According to the complaint, Tesla sold warrants in 2014 to JPMorgan, which will pay if their “strike” price is less than Tesla’s share price when the warrants expire in June and July 2021.

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Tesla’s stock price soared nearly 10 times this year by warrant expiring

JPMorgan said the warrant had 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 private. Was.

Musk’s August 7, 2018 tweet that he could take Tesla private at $420 per share and that he had “funding secured”, and then announced 17 days later that he was abandoning the plan, announced the stock. There was significant volatility in the price, the bank said. On both occasions, JP Morgan adjusted the strike price “to maintain the same fair market value” prior to the tweet.

Tesla’s share price soared nearly 10 times this year by the time the warrant expired, and JPMorgan said it is required under its contract to hand over shares of its stock or cash to Tesla. The bank said Tesla’s failure to do so amounted to a default.

“While JPMorgan’s adjustments were reasonable and contractually necessary,” the bank said, “Tesla has openly disregarded its explicit contractual obligation to make full payments to JPMorgan.”

In February 2019 Tesla complained that the bank’s adjustment was “an opportunistic attempt to take advantage of changes in volatility in Tesla’s stock” but did not challenge the underlying calculations, JPMorgan said.

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Musk’s tweets resulted in civil charges and a $20 million fine against both him and Tesla by the US Securities and Exchange Commission.

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