JPMorgan sues Tesla for $162m over warrant deal
JPMorgan Chase & Co has instituted a suit against electric car maker, Tesla Inc. for $162.2 million. In the suit, the banking giant accused Elon Musk’s electric car company of “flagrantly” breaching a contract agreement in 2014 relating to warrants Tesla sold to the bank.
“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.
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.
Tesla is, however, yet to respond to the charges.
It should be recalled that on August 7, 2018, Musk tweeted that he might take Tesla private at $420 per share and had “funding secured”. 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.
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 re-priced its Tesla warrants as a result of Musk’s notorious 2018 tweet that he was considering taking the carmaker private.
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