JPMorgan Chase has filed a $162 million lawsuit alleging Tesla reneged on a stock warrant deal after the investment firm lowered the strike price.
The suit for breach of the 2014 deal agreement centers on a dispute over JPMorgan’s re-pricing of the warrants in 2018 as a result of Tesla CEO Elon Musk’s notorious tweet that he was considering taking the carmaker private.
While JPMorgan claims it acted appropriately under the “announcement event protection” clause of the agreement when it made two adjustments to the strike price, Tesla has said the re-pricing was “unreasonably swift and represented an opportunistic attempt to take advantage of changes in volatility in Tesla’s stock.”
Tesla has “flagrantly ignored its clear contractual obligation” by failing to settle the warrants at the adjusted strike price when they expired earlier this year, JPMorgan says in its complaint.
According to Reuters, “It is unusual for a major Wall Street bank to sue such a high-profile client, although JPMorgan has done relatively little business with the electric carmaker over the past seven years.”
Musk’s Aug. 7, 2018, tweet stating “Am considering taking Tesla private at $420. Funding secured,” was unusual, triggering a U.S. Securities and Exchange Commission investigation and a class action alleging he defrauded shareholders.
JPMorgan reacted by lowering the warrant strike price from the original $560.64 to $424.66, citing a standard clause in the deal agreement that protected the parties against the economic effects on the warrants of announcements of significant corporate transactions involving Tesla.
The economic effects of the Musk tweet “substantially decreased the value of the warrants,” the suit alleges.
After Tesla announced on Aug. 24, 2018, in a blog post attributed to Musk that it was abandoning the going-private proposal, JPMorgan adjusted the strike price again, raising it to $484.35.
Tesla, however, protested that no adjustment should be necessary at all because it had so quickly abandoned its going-private plans, renewing its objections after the parties began settlement talks.
“We have provided Tesla multiple opportunities to fulfill its contractual obligations, so it is unfortunate that they have forced this issue into litigation,” a spokesperson for JPMorgan said.