Investment bank says it lost millions because of tweets by Elon Musk that he might take electric carmaker private
Tue 16 Nov 2021 20.10 EST
JPMorgan has sued Tesla for $162.2m, accusing Elon Musk’s electric car company of “flagrantly” breaching a 2014 contract relating to stock trading options that Tesla sold to the bank.
The options, or 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, centres on 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.
It is unusual for a major Wall Street bank to sue such a high-profile client, although JPMorgan has done relatively little business with Tesla over the past seven years, according to Tesla’s filings and Refinitiv data.
“We have provided Tesla multiple opportunities to fulfil its contractual obligations, so it is unfortunate that they have forced this issue into litigation,” a spokesperson for JPMorgan said in a statement.
Tesla did not respond to requests for comment.
The options agreement meant that if Tesla’s share price was at or above the strike price of $560 on the day the warrants expired in June and July 2021, it would owe JPMorgan the difference between the share price on that date and $560.
So, given that Tesla’s stock was worth more than $600 by June this year, JPMorgan stood to make a decent profit.
But it wants an extra $162m because it argues that the warrants contained standard provisions that allowed it to adjust the strike price downwards to protect itself against the economic effects of “significant corporate transactions involving Tesla”.
The bank argues that Musk’s tweet on 7 August 2018 that he might take Tesla private at $420 a share – at that point the shares were worth $341.99 – was just such a significant moment. With a buyout price set at $420, JPMorgan could not reach its strike price of $568 and therefore would not make any money. Accordingly, JPMorgan adjusted the strike price downwards, therefore increasing the chance of profit.
JPMorgan said in its complaint that Tesla had failed under its contract to hand over the agreed amount 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 bank’s complaint said, “Tesla has flagrantly ignored its clear contractual obligation to pay JPMorgan in full.”
JPMorgan said Tesla had replied that the bank’s adjustments to the strike price were “an opportunistic attempt to take advantage of changes in volatility in Tesla’s stock”. But Tesla did not challenge the underlying calculations, JPMorgan said.