Jamie Dimon, CEO of JPMorgan Chase & Co.
Source: Getty Images

JPMorgan Suing Tesla Over Stock Warrant Incident

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Nov. 16 2021, Published 11:28 a.m. ET

About three years after Elon Musk tweeted he was going to take his luxury electric vehicle company Tesla Motors private in 2018 (a fate that never came to fruition), JPMorgan Chase is seeking revenge. The banking conglomerate is suing Tesla for breaching a stock warrant contract between the two parties.

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Here's the lowdown on how Tesla got here and why JPMorgan is opening the lawsuit now.

Unearthing Elon Musk's problematic tweet about Tesla stock in 2018

Elon Musk tweeted on Aug. 7, 2018, "Am considering taking Tesla private at $420. Funding secured." This was the first in a series of statements from the founder and his company that suggested a potential public-to-private transaction.

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Musk was ultimately charged with securities fraud over the move because his public tweets were false and misleading for the market. There was never an offer to take Tesla private in the first place.

As Musk sells Tesla stock, JPMorgan is entering the conversation

As of Nov. 16, 2021, Musk had sold $7.8 billion in Tesla (NASDAQ:TSLA) stock in the past six trading days. By mid-morning, the company's stock price was $1,048.85 per share with a market cap of $1.04 trillion.

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Despite the massive stock sale (and the massive capital gains tax bill that accompanies it), Tesla shares have risen marginally since Musk started offloading stock and options.

Amid the reallocation of outstanding Tesla shares, JPMorgan (NYSE:JPM) has entered the conversation. JPMorgan alleges Musk manipulated the price of the stock warrants to avoid paying stocks or cash to JPMorgan as agreed. Since the stock didn't reach the required strike price, JPMorgan missed out on a lot of profit.

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How much is the JPMorgan lawsuit against Tesla worth?

JPMorgan's lawsuit against Tesla is worth $162 million, the amount "Tesla has refused to settle at the contractual strike price and pay in full what it owes to JPMorgan," according to the suit. This is in addition to litigation expenses and legal fees.

Why JPMorgan is suing Tesla now

JPMorgan's stock warrants expired in June and July 2021. With the stock warrants expired and Musk denying payment, JPMorgan is pursuing payment in the courtroom.

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Ultimately, JPMorgan says Musk's securities fraud and market manipulation equate to a contractual breach. According to JPMorgan spokesperson Tasha Pelio, Tesla "forced this issue into litigation."

The likeliest outcome for JPM and TSLA

Musk has already been sued for securities fraud over his tweets about taking Tesla private. He paid $20 million to the SEC personally and through his company, but profited a lot more on increased stock value. Today, the SEC requires that Musk get financially related tweets approved by company executives.

As for the JPMorgan lawsuit against Tesla, it's possible the court will side with the bank. However, JPMorgan may have difficulty providing evidence that it would have certainly reached the strike price necessary to exercise its warrants at value.

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