America’s largest bank sues Tesla for huge debt

The largest bank in the US, JPMorgan, has just sued Tesla, for up to $ 162 million in debt related to a warrant deal from 2014. The lawsuit was filed in the District Court in New York on last Wednesday.

According to a Reuters report, JPMorgan bought some warrants from Tesla in 2014, when the company was trying to raise funds for the construction of its first Gigafactory.

Stock warrants give the buyer (in this case, JPMorgan) the right to buy company shares at a pre-agreed price for a specified period of time. The warrants that JPMorgan bought from Tesla in 2014 have a term of June 2021.

Initially, the two companies agreed on a price to buy shares of $ 560.63. If the warrants expire and Tesla’s stock price is below that price, Tesla is not liable. But if Tesla’s share price is higher than that when the warrants expire, JPMorgan has the right to demand that Tesla deliver more shares equal to the difference in price.

However, this agreement from 2014 to now has had many major events. The first was CEO Elon Musk’s tweet in August 2018, saying he was looking to make Tesla a private company at $420 per share. Soon after, Elon Musk was sued by the US Securities and Exchange Commission for this tweet.

JPMorgan, noticing the volatility in Tesla’s stock, asked to lower the warrant price to $424.66. Tesla agreed to participate in a new deal meeting on August 24 with JPMorgan, but at the last minute backed out. That same day, Tesla and CEO Elon Musk announced that they had abandoned their intention of making Tesla a private company.

Tesla’s lawyers sent a letter to JPMorgan in February 2019, arguing that the bank’s changes were “unreasonably swift and opportunistic to move Tesla’s stock.” After that, the two companies did not have any meetings for 2 years.

In August 2020, JPMorgan suddenly lowered the warrant price to $ 96.87 / share, explaining it because of the Tesla stock split. America’s No. 1 Bank also said that Tesla did not object.

Until the warrants expired in June of this year, Tesla’s stock price had an amazing growth. This means that the warrants that JPMorgan bought were very profitable, but when this bank asked Tesla to pay, it was refused. Tesla claims to oppose all previous price adjustments by JPMorgan and pays only in part in shares.

JPMorgan then sued and said Tesla was still owed 228,775 shares, or $162.2 million (based on Tesla stock prices at the time). On the Tesla side, there has not been any response yet.

Reference: theverge