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JPMorgan Sues Tesla for $162 Million Over Stock Warrants

Tesla 'flagrantly ignored' its obligation to make payments related to stock warrants, JPMorgan Chase says in a lawsuit.

JPMorgan Chase  (JPM) - Get JPMorgan Chase & Co. (JPM) Report filed a $162 million lawsuit against Tesla  (TSLA) - Get Tesla Inc Report, alleging the electric vehicle maker "flagrantly ignored" its obligation to pay the financial services giant payments related to stock warrants.

The lawsuit, filed in U.S. District Court for the Southern District of New York, said Tesla in 2014 sold warrants to JPMorgan. The warrants would pay off if their "strike price" was above Tesla's share price when the warrants expired in June and July 2021.

A stock warrant represents the right to purchase a company's stock at a specific price and at a specific date.

Tesla was required to deliver either shares of its stock or cash to JPMorgan if, at the time the warrants expired, Tesla’s share price was above the contractual “strike price,” according to the complaint.

"The warrants did expire with Tesla’s share price above that strike price," the complaint said. "JPMorgan demanded the due shares or cash, but Tesla has flagrantly ignored its clear contractual obligation to pay JPMorgan in full."

On Aug. 7, 2018, Tesla Founder and Chief Executive Elon Musk tweeted: "Am considering taking Tesla private at $420. Funding secured." On Aug 24, the company published a blog post, attributed to Musk, saying the company would not be going private.

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The Securities and Exchange Commission later filed civil complaints against Musk and Tesla, charging that Musk's tweets had been fraudulent and that the company did not have adequate controls to ensure the information in Musk's account was accurate and complete.

Musk and Tesla settled with the SEC on the same day it filed its complaint against Tesla.

By June 1, 2021, Tesla's stock price had soared to $623.90 a share, "resulting in the 2021 warrants being 'back in the money' by a substantial amount," the lawsuit said.

"“In total, Tesla failed to deliver 228,775 shares of its common stock, leaving JPMorgan with an open hedge position equal to that shortfall," the complaint said.

Tesla shares recently were off 1% at $1,003 after SEC filings showed that Musk sold another $930 million in shares of the company.

Tesla did not immediately respond to a request for comment.