Tesla Sued By JPMorgan Over Elon Musk Privatisation Tweet

Investment bank JPMorgan sues Tesla for $162 million, alleging Elon Musk’s privatisation tweet in 2018 cost it millions of dollars

Tesla is being sued by investment bank JPMorgan Chase, over controversial tweet made by Elon Musk back in 2018 that landed him in hot water with US regulators.

JPMorgan sued Tesla on Monday for $162.2 million, alleging Tesla of ‘flagrantly’ breaching a contract related to stock warrants after its share price soared, CNN reported.

The complaint was filed in Manhattan federal court, and it states that Tesla in 2014 sold warrants to JPMorgan that would pay off if its ‘strike price’ was below Tesla’s share price upon the warrants’ expiration in June and July 2021.

elon musk, tesla, spacex
Image credit: SpaceX

Notorious tweet

The options, or warrants, give the holder (JPMorgan) the right to buy a company’s stock at a set ‘strike’ price and date.

The central thrust of the lawsuit, is a dispute over how JPMorgan repriced its Tesla warrants as a result of Musk’s notorious 2018 tweet that he was considering taking the carmaker private.

In August 2018, out of the blue, Musk had tweeted that he was considering taking Tesla private and that he had secured funding to do so.

He abandoned the idea 17 days later.

Musk was almost immediately hit with two lawsuits which alleged that Musk’s Tweets were fraudulent effort to attack short sellers.

These tweets brought Musk to the attention of the SEC, which accused Musk of securities fraud, and alleged he made a series of “false and misleading” tweets about potentially taking Tesla private.

Indeed, the SEC sued Tesla and sought to ban Elon Musk from acting as an officer or director of a publicly traded company.

In the end, the US financial regulator forced Musk to step down as chairman of Tesla and pay $20m in penalties.

Musk however was allowed to retain the CEO role.

Musk also had to submit any public statements (including tweets) about the company’s finances to vetting by its legal counsel before publishing them.

Share deal

JPMorgan said it had authority to adjust the strike price, CNN reported, and it also said it substantially reduced the strike price after Musk’s 7 August 2018 tweet that he might take Tesla private at $420 per share.

But Tesla’s share price rose approximately 10-fold by the time the warrants expired, and JPMorgan said this required Tesla under its contract to deliver 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.”

According to the complaint, Tesla allegedly sold the warrants to reduce potential stock dilution from a separate convertible bond sale and to lower its federal income taxes.

CNN reported that JPMorgan said it had been contractually entitled to adjust the warrants’ terms following “significant corporate transactions involving Tesla.”

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

However Tesla reportedly did not immediately respond to requests for comment.