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American multinational investment bank and financial services holding company JPMorgan Chase & Co. is suing electric vehicle company Tesla for $162 million, accusing its founder Elon Musk of breaching a contract the two industry giants entered into in 2014 involving stock trading options that the latter sold to the bank.
The suit that was filed in a Manhattan federal court highlights a legal disagreement over how JPMorgan repriced its Tesla warrants or options, which resulted from Musk’s notorious 2018 tweet stating that he was inclined to take the carmaker private. The warrants or options give holders the legal right to buy a company’s stock at a set price and date.
On Aug. 7, 2018, Musk tweeted that he was considering taking Tesla private at $420 per share and that he had “funding secured.” Seventeen days later, Musk announced that he was abandoning that direction, creating an unexpected and unnecessary ripple effect, including making the share price very volatile. On these two significant occasions, JPMorgan opted to adjust the strike price to “maintain the same fair market value” prior to the publication of the tweet.
While it is highly unlikely that a respectable bank such as JPMorgan will opt to bring a high-profile client to court, the financial organization still pursued this direction.
“We have provided Tesla multiple opportunities to fulfill its contractual obligations, so it is unfortunate that they have forced this issue into litigation,” a JPMorgan spokesperson said in a statement.
In June and July 2021, the warrants expired. By that time, Tesla’s share price had risen significantly by tenfold. According to JPMorgan, this required Tesla, as stipulated in their contract, to hand over shares of its cash or stock. Tesla’s failure to comply with their end of the bargain merits 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,” the bank’s statement added.
The tweets that Musk published back then prompted the U.S. Securities and Exchange Commission to bring civil charges and $20 million in fines against him and Tesla.
Reports recently revealed that Musk’s worth is lesser by $50 billion since his Twitter poll sent Tesla’s stocks into a nosedive. Just last week, shares fell more than 15% after Musk tweeted last Nov. 6 that he is strongly thinking of selling 10% of his shares. On Monday, Tesla closed with another 2% drop, cutting off billions from Musk’s overwhelming fortune. Forbes estimates Musk’s worth to be $266.9 billion, which is apparently lesser by $50 billion now following his tweet.
The past week, Musk has been dumping stocks like anything. He was able to successfully sell about $5 billion worth early last week. He then added another $700 million in sales that same week. On Friday, another regulatory filing revealed that a new set of sales reaching 1.2 million in shares amounted to $1.2 billion pretax.
At present, Musk retains his position as the richest man in the world with a staggering lead over Amazon’s founder Jeff Bezos by at least $62.7 billion.
Tesla has yet to release an official statement pertaining to the lawsuit filed by JPMorgan.