America’s first asset bank, JPMorgan Chase. sued Tesla for $ 162 million for a series of stock warrant transactions dating back to CEO Elon Musk’s short-lived attempt to delude the automaker. The transaction dates back to 2014 and served to mitigate the risk that Tesla shares were diluted by the issuance of convertible banknotes as well as to make some tax deductions, according to a report in the federal court in Manhattan on Monday. Upon expiration of the warrants, Tesla would have owed JPMorgan a share or cash payment if its shares had traded above a certain strike price.
JPMorgan says it was empowered to adjust the strike price based on factors including the volatility of Tesla’s stock. The bank made two changes in August 2018, one after Musk wrote on Aug.7 of that year the famous tweet about having obtained funding to bring Tesla private, and another when the CEO quit the effort weeks later.
Tesla’s protest
The warrants have now expired. “Even though JPMorgan’s adjustments were appropriate – the bank wrote in the complaint – and contractually required, Tesla refused to pay the contractual strike price and to pay the full amount it owes JPMorgan.” Tesla wrote to JPMorgan in February 2019 to argue that the bank’s adjustments six months earlier were “unreasonably quick and represented an opportunistic attempt to take advantage of changes in the volatility of Tesla’s stock,” according to the complaint. But JPMorgan says Tesla hasn’t convincingly countered its calculations and hasn’t objected further in the past couple of years. Tesla did not respond to a request for comment on the lawsuit.
The dispute brings back one of the most controversial episodes in Musk’s history. The Securities and Exchange Commission sued CEO and Tesla in September 2018, arguing that Musk had committed securities fraud and that the company did not have adequate controls over its social media activity. Musk and Tesla agreed to pay a $ 20 million deal without admitting wrongdoing. Most importantly, the chief executive was forced to step down as chairman of the board for three years, and Tesla agreed to have a lawyer approve the material information Musk wants to communicate to investors in advance. It is unclear whether this is the case with the recent Twitter poll about the opportunity to sell 10% of its shares ahead of a billion-dollar tax deadline. Since then (including 930 million on Monday) he has downloaded about 7.8 billion shares of the company, causing the stock to drop by 20%.
The reaction of the title
News of JPMorgan’s lawsuit caused Tesla’s stock value to drop by as much as 4%, then back to a more red content of 1%. Capitalization remains above $ 1 billion after dropping below for a few hours.