JPMorgan Chase Bank, National Association, London Branch (JPMorgan) has sued electric vehicle maker Tesla for breach of contract concerning a tweet its CEO made about returning the company to private ownership. Monday’s Southern District of New York complaint contends that Tesla Inc. ignored its obligation to pay JPMorgan for a series of warrant transactions which required Tesla to deliver either stock shares or cash, if when the warrants expired, Tesla’s share price was above the contractual strike price.
The filing explains that on Aug. 7, 2018, Elon Musk announced “Am considering taking Tesla private at $420. Funding secured” on Twitter. In the following weeks, Tesla reportedly made additional statements and took actions avowing the going-private transaction. The filing notes that a Securities Exchange Commission action later revealed that funding was not secured and that, as such, Musk’s tweets were false and intended to mislead the market.
Additionally, the announcement “caused immediate and significant economic effects as the market attempted to price in the likelihood of Tesla going private and making a tender offer at $420 [per share].” According to JPMorgan, those economic effects significantly decreased the value of its warrants. Accordingly, and as reportedly required under the agreements, JPMorgan reduced the warrant strike price on August 15 to “maintain the same fair market value as the warrants had before Tesla’s announcement.”
On Aug. 24, 2018, Tesla abruptly changed tack and announced it was foregoing the transaction, which reportedly increased the value of the warrants. Correspondingly, JPMorgan adjusted the strike price, a move that partly reversed the initial reduction. Tesla allegedly objected to the adjustments, arguing that they were unnecessary because it had so quickly abandoned its going-private plans.
When the plaintiff went to settle the warrants in the summer of 2021, Tesla reportedly renewed its objections to the adjustments, but the parties agreed that Tesla should at least settle an undisputed number of shares. That allegedly left a deficit of 228,775 shares of Tesla common stock and JPMorgan with an open hedge position equal to that shortfall.
The pleading states one claim for relief, breach of contract. JPMorgan seeks the nine-figure contractual entitlement, plus interest, and an award of its attorneys’ fees and costs. Davis Polk & Wardwell LLP represents the plaintiff in the matter.