JPMorgan says Tesla owes the bank $ 162 million

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JPMorgan is suing Tesla, arguing that the electric car company owes the bank $ 162 million in connection with a 2014 stock guarantee deal. The dispute centers on the adjustments the companies made to the deal following the Tesla CEO Elon Musk’s 2018 “[f]uning ”protected tweet and the consequent fallout.

The lawsuit was filed late Monday in the southern borough of New York. Tesla did not immediately respond to a request for comment and disbanded its US press team.

According to the lawsuit, which was first reported by Reuters, JPMorgan bought a series of warrants from Tesla in 2014 – when the company he was still trying to finance the construction of the original Gigafactory.

Stock warrants give the buyer (JPMorgan, in this case) the right to buy stock in a company (Tesla) at a predetermined price within a certain time frame. Warrants purchased by JPMorgan from Tesla in 2014 would expire in June and July 2021.

Initially, the companies agreed on a “strike price” of $ 560,6388. If the warrants had expired and Tesla’s stock price was below that strike price, neither company owes anything to the other. But if Tesla’s stock price was higher than the strike price at maturity, JPMorgan says Musk’s company should have essentially delivered shares equal to the difference in those prices.

Being a huge and complicated financial transaction, JPMorgan made sure there were all kinds of legal protections in place. One was a hedge against any big announcements related to mergers or acquisitions that could affect Tesla’s share price. Should something like this happen, the bank and the automaker were able to agree on a new strike price for the warrants.

Which brings us to the tweet. Moss famously tweeted on August 7, 2018 who was “considering taking Tesla private for $ 420. Secured financing.” Later that day, Tesla’s chief financial officer, chief communications officer, and chief attorney wrote an email attributed to Musk who is was posted on Tesla’s blog explaining his announcement. Musk also tweeted that “[i]Investor support is confirmed. The only reason this isn’t certain is that it’s conditional on a shareholder vote. “Tesla’s chief investor relations officer also told the press that there was a” final offer. ”

Basically none of this was true though, as everyone discovered after the Securities and Exchange Commission South Musk and Tesla beyond the announcement. Musk had a quick conversation with the Saudi Arabian Public Investment Fund, but that’s about it.

Before the truth came out, however, JPMorgan saw the resulting volatility in Tesla’s share price and decided to change the strike price of its warrants. He lowered the price to $ 424.66 and informed Tesla. Tesla accepted a conference call scheduled for August 24, but withdrew at the last minute, according to the lawsuit.

That same day, Tesla and Musk announced that they were abandoning the attempt to take Tesla private.

Therefore JPMorgan has once again decided to adjust the strike price of the warrants. He made new calculations based on the response to Tesla and Musk’s decision to turn around and set a strike price of $ 484.35.

This time, Tesla “protested that no adjustment would be needed because he had abandoned his plans to go private so quickly,” writes JPMorgan in its lawsuit. The bank provided Tesla with its calculations and “held several conference calls” to explain them, and claims that Tesla “did not provide any specific objections” to those explanations. Subsequently, JPMorgan says Tesla stopped talking to the bank for six months.

Tesla’s attorneys eventually sent a letter to JPMorgan in February 2019 stating that the bank’s adjustments were “unreasonably quick and represented an opportunistic attempt to take advantage of changes in the volatility of Tesla’s shares.” JPMorgan responded, “rejecting everything [Tesla’s] allegations, “but then the two sides did not speak to each other for two years. JPMorgan made another adjustment up to $ 96.87 in August 2020 to takes into account Tesla’s stock split, and says Tesla never answered that either.

By the time the expiration dates came this year, Tesla’s stock was already in an incredible run and JPMorgan’s warrants were “in the money” for a substantial amount, “according to the lawsuit. When the bank contacted Tesla to cash out, Tesla “renewed its objections to the adjustments.” Tesla settled some shares with JPMorgan – the bank did not say how many – but “refused to pay in full,” the bank says, so it activated an “early termination” clause. .

JPMorgan says Tesla still owed 228,775 shares when it entered into the deal and that those shares are worth $ 162,216,628.81 based on Tesla’s share price at the time. (Potentially worse for JPMorgan, it had hedged its mandate deal with Tesla by keeping a short position against Tesla’s stock. When Tesla didn’t pay off the remaining stock, the bank had to buy the same amount on the open market to cover that covered bet. .)

Shortly after the lawsuit was filed on Monday, Musk was still actively tweeting in a thread that started on Sunday in reply to a tweet from Senator Bernie Sanders (I-VT) on taxes. “I like to dig my grave very deep,” Musk he wrote.

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