JP Morgan sues Tesla for $162m warrant dispute over Elon Musk tweet
JP Morgan has sued Tesla for $162m and accused the EV carmaker of “flagrantly” breaching a contract related to stock warrants, after CEO Elon Musk threatened to take the company private in a 2018 tweet.
According to the filing in New York on Monday, Tesla sold warrants to the US investment bank that would pay off if their strike price were below the EV-maker’s share price upon the warrants’ expiration in June and July this year.
JP Morgan substantially reduced the strike price after Elon Musk’s August 2018 tweet saying that he might take Tesla private at $420 per share and had “funding secured”.
According to the bank, it made the adjustment because Musk’s tweet elicited “immediate and significant economic effects as the market attempted to price in the likelihood of Tesla going private.”
When Musk aborted the idea 17 days later, JP Morgan reversed some of the strike price reduction. The bank said in the filing that it had the authority to adjust the strike price so, as per the mutual contract.
But in between then and when the warrants expired this summer, Tesla’s share price increased almost ten-fold, requiring it to deliver shares of its stock or cash to the bank, JP Morgan said in the filing.
“Even though JPMorgan’s adjustments were appropriate and contractually required, Tesla has refused to settle at the contractual strike price and pay in full what it owes to JPMorgan,” the bank’s complaint said.
“Tesla is in flagrant breach of its contractual obligations. As a result, more than $162m is immediately due and payable to JPMorgan by Tesla.”
According to the filing, Tesla complained in February 2019 that JP Morgan’s strike price adjustments were “an opportunistic attempt to take advantage of changes in volatility in Tesla’s stock.” But the EV-maker did not challenge the bank’s calculations, JP Morgan said.
The tweet in question led the US Securities and Exchange Commission (SEC) to charge Musk with securities fraud, and Tesla and its CEO paid $20m each to settle the lawsuit.