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Monday, January 24, 2022 | 09:39 pm
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JPMorgan Says Tesla Owes the Bank $162 Million

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JPMorgan Says Tesla Owes the Bank $162 Million

JPMorgan has sued Tesla, alleging that the car company owes it $162 million in relation to a 2014 stock warrant agreement.

The quarrel is about the companies’ changes to the contract after Elon Musk’s 2018 “[f]unding secured” tweet and the resulting fallout.

The complaint was filed at 11:30 p.m. ET on Monday in the Southern District of New York. Tesla did not respond to a request for comment, and its American press team has been disbanded.

A lawsuit filed in the United States District Court for the Southern District of New York claims that JPMorgan bought warrants on Tesla stock when the company was still attempting to raise capital for its first Gigafactory.

Within a specified time period, Tesla can sell shares at a set price to any third party who meets the conditions of the warrant. .

The warrants JPMorgan acquired from Tesla in 2014 were due to expire in June and July 2021.

The initial settlement was for a “strike price” of $560.6388, according to court documents. If the warrants expired and Tesla’s stock price was less than that strike price, neither firm would owe anything to the other.

However, if Tesla’s stock price was higher at expiration, JPMorgan claims Musk’s company was obligated to deliver shares equal to the difference in those prices.

If Tesla announced a merger or acquisition, JPMorgan could raise or lower the warrant prices.

JPMorgan made sure that the acquisition was correctly planned and carefully executed, ensuring that there were several legal protections in place.

One was a hedge against any major news about mergers or acquisitions that might impact Tesla’s share price. If something like this came up, both JPMorgan and Tesla were able to negotiate a new strike price for the warrants.

The final straw was a tweet. On August 7th, 2018, Musk tweeted that he was “considering taking Tesla private at $420.” Afterward, on the same day, Tesla’s CFO and other top executives published an email attributed to Musk that stated his plan.

“[I]nvestor backing is confirmed. The only reason this isn’t certain is that it depends on a shareholder vote,” Musk tweeted. According to Tesla’s investor relations head, there was a “firm offer.”

It was, however, all a lie. As everyone learned after the Securities and Exchange Commission filed charges against Musk and Tesla over the news, none of it was true. Musk had a short conversation with Saudi Arabia’s Public Investment Fund, but that was about it.

However, before the truth was known, JPMorgan revised the strike price of its warrants in response to the increased volatility in Tesla’s stock price. It lowered the price to $424.66 and informed Tesla, according to a lawsuit.

Tesla and Musk then revealed that the effort to take Tesla, private, had been abandoned.

So JPMorgan revised the strike price of the warrants yet again. It based new calculations on Tesla and Musk’s decision to reverse course and determined a $484.35 strike price as a result.

Tesla has abandoned JPMorgan, according to reports.

According to the complaint filed by JPMorgan, Tesla “protested that no change was required at all because it had abandoned its planned acquisition in such a short time,” according to the claim.

The bank offered Tesla with its projections and “held numerous conference calls” to explain them, according to the lawsuit, but Tesla made no apparent concerns. Following this, JPMorgan claims that Tesla failed to communicate with it for six months.

Tesla’s attorneys eventually sent a letter to JPMorgan in February 2019, in which they charged that the bank’s modifications were “unreasonably quick” and represented an “opportunistic attempt to take advantage of Tesla’s stock volatility.”

But then there was silence for two years. In August 2020, after Tesla went public, JPMorgan made another reduction down to $96.87 to reflect its split; but Tesla never responded.

JPMorgan’s warrants were “in the money” by a significant amount by the time expiration dates arrived this year, according to the lawsuit. When the bank tried to cash out, Tesla renewed its objections to the adjustments.

Tesla did settle some shares with JPMorgan — which declined to state how many — but “refused to settle in full,” therefore triggering an early termination clause.

According to a lawsuit filed by Tesla against JPMorgan, the stock transaction that went sour cost the electric car maker $165 million in cash and 78,000 shares worth about $162 million.

The company says it still owed 228,775 shares when the deal was terminated, and those shares are valued at $162.2 billion based on Tesla’s stock price at the time.

(Worse for JPMorgan: It had hedged its warrant agreement with Tesla by maintaining a short position against Tesla’s stock. When Tesla didn’t settle the outstanding shares, the bank had to buy them on the market to cover that hedged bet.)

Elon Musk was still actively tweeting in a thread he had started on Sunday in response to a tweet from Senator Bernie Sanders (I-VT). “I like to make sure I dig my grave deep,” Musk added. However, the case against him is quite strong.

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