4 ms·

JPMorgan sues Tesla for $162M for breach of contract regarding stock warrants

30 points by starwind 5y ago

starwind 5y ago
Text of lawsuit here: https://storage.courtlistener.com/recap/gov.uscourts.nysd.569891/gov.uscourts.nysd.569891.1.0.pdf https://storage.courtlistener.com/recap/gov.uscourts.nysd.56... First 5 paragraphs are worth a read
- sova 5y ago
  Is there prior art to suggest that tweets about going private indubitably result in damaged warrants? This notion seems dismissible by pointing out that correlation is not causation, but I am oversimplifying and that would be for a judge to determine. Come to think of it, there are probably numerous episodes where such things happened but maybe not in tweets, but newspapers of yore and the like.
  - shapefrog 5y ago
    An announcement that you are going private is a corporate action and triggers an adjustment of the warrant. > the announcement by the Issuer of any intention to enter into a Merger Event or Tender Offer As to the validity of a tweet being a public statement: prior art is Tesla themself > In a Form 8-K filed on November 5, 2013, Tesla had identified Mr. Musk’s personal Twitter account as a source of material public information about the company and encouraged investors to review that account. The adjustments happened both ways, for the announcement of going private and them abandoning going private.
  - zcw100 5y ago
    IANAL but wouldn't the argument "correlation is not causation" basically exclude all circumstantial evidence?
    - voakbasda 5y ago
      And a case with only circumstantial evidence should be thrown out with prejudice. Those cases are akin to witch hunts.
      - zcw100 5y ago
        Unless someone actually witnesses a murder you want it thrown out? Someone could walk into a room with a knife, screaming is heard, "no, no please don't stab me with that knife", the person walk out of the room covered in blood and a dead body is then found and you want it to be thrown out with prejudice? That's all circumstantial evidence.
        sova 5y ago
        I think hearing something would be direct evidence, as opposed to indirect. Plus, aren't we supposed to err on the side of "innocent until proven guilty?" And I think for such a crime as you were describing there needs to be motive and action, not just one without the other. However, I must agree with you that indirect proof can certainly still be proof. Especially with regard to inductive reasoning and ascertaining truths without direct knowledge (or before/leading up to direct knowledge).
        zcw100 5y ago
        People scream for lots of reasons. I could argue that being murdered is the least likely reason for someone to be screaming. Some legal systems err or the side of "innocent until proven guilty" but you're leaving the last part off, "beyond a reasonable doubt". There's no need to establish a motive for a crime. I believe it may strengthen the case against you but it's not like you can get off for committing a crime just because they couldn't establish a good reason for you to have done it. "So, Mr. Chayote, why did drop that anvil on my client's head, Mr. Roadrunner?", "No reason, that's just what I do", "Case dismissed due to lack of motive!"
        sova 5y ago
ngm___ 5y ago
this part takes the cake! JPMorgan says Tesla still owed 228,775 shares when it terminated the deal, and that those shares are worth $162,216,628.81 based on Tesla’s stock price at the time. (Potentially worse for JPMorgan, it had hedged its warrant agreement with Tesla by maintaining a short position against Tesla’s stock. When Tesla didn’t settle the remaining shares, the bank had to buy the same amount on the open market to cover that hedged bet.)
ksec 5y ago
It seems rather strange that JPMorgan can change the strike price at any time they felt OK. Can someone provide a reasonable explanation for this?
- shapefrog 5y ago
  They cant. The contract contains remedies for corporate actions, which result in an adjustment by a calculating party defined in the contract. Corporate action happened and the agent adjusted the warrants.
- phyalow 5y ago
  I agree, JPMorgan is the calculation agent in this case and any ISDA is clear cut around their ability to unilaterally make pricing decisions. I suspect the issue in this case is more a dispute around whether or not the strike adjustments they made with respect to the “funding secured” fiasco are valid (or fair). I cant see a reason why an adjustment and not a total reversal to that adjustment are valid - simply put the mechanical economics of the shares did not change, yet JPMorgan felt entitled to change them. In anycase it is likely Tesla will lose this as ISDA related disputes are usually in the favour of the issuer (calc agent) with significant precedence.
  - shapefrog 5y ago
    > I cant see a reason why an adjustment and not a total reversal to that adjustment are valid - simply put the mechanical economics of the shares did not change > Agreements call for an adjustment either “on or after the relevant date of such Announcement Event.” If your employer fires you then a day later rehires you, are you in the exact same position as before? Does it change your perception of your employer? If something makes you sad and it is followed by an equal amount of happiness are you in the same emotional state as before? "funding secured" and "there is no money" were two seperate and distinct corporate events. They may have been a net wash on the share structure, but they did not elicit equal market reactions, and the market reaction is what the contract is contractually obligated to be adjusted for.

30 points by starwind 5y ago

Text of lawsuit here: https://storage.courtlistener.com/recap/gov.uscourts.nysd.569891/gov.uscourts.nysd.569891.1.0.pdf https://storage.courtlistener.com/recap/gov.uscourts.nysd.56... First 5 paragraphs are worth a read

sova 5y ago
Is there prior art to suggest that tweets about going private indubitably result in damaged warrants? This notion seems dismissible by pointing out that correlation is not causation, but I am oversimplifying and that would be for a judge to determine. Come to think of it, there are probably numerous episodes where such things happened but maybe not in tweets, but newspapers of yore and the like.
- shapefrog 5y ago
  An announcement that you are going private is a corporate action and triggers an adjustment of the warrant. > the announcement by the Issuer of any intention to enter into a Merger Event or Tender Offer As to the validity of a tweet being a public statement: prior art is Tesla themself > In a Form 8-K filed on November 5, 2013, Tesla had identified Mr. Musk’s personal Twitter account as a source of material public information about the company and encouraged investors to review that account. The adjustments happened both ways, for the announcement of going private and them abandoning going private.
- zcw100 5y ago
  IANAL but wouldn't the argument "correlation is not causation" basically exclude all circumstantial evidence?
  - voakbasda 5y ago
    And a case with only circumstantial evidence should be thrown out with prejudice. Those cases are akin to witch hunts.
    - zcw100 5y ago
      Unless someone actually witnesses a murder you want it thrown out? Someone could walk into a room with a knife, screaming is heard, "no, no please don't stab me with that knife", the person walk out of the room covered in blood and a dead body is then found and you want it to be thrown out with prejudice? That's all circumstantial evidence.
      - sova 5y ago
        I think hearing something would be direct evidence, as opposed to indirect. Plus, aren't we supposed to err on the side of "innocent until proven guilty?" And I think for such a crime as you were describing there needs to be motive and action, not just one without the other. However, I must agree with you that indirect proof can certainly still be proof. Especially with regard to inductive reasoning and ascertaining truths without direct knowledge (or before/leading up to direct knowledge).
        zcw100 5y ago
        People scream for lots of reasons. I could argue that being murdered is the least likely reason for someone to be screaming. Some legal systems err or the side of "innocent until proven guilty" but you're leaving the last part off, "beyond a reasonable doubt". There's no need to establish a motive for a crime. I believe it may strengthen the case against you but it's not like you can get off for committing a crime just because they couldn't establish a good reason for you to have done it. "So, Mr. Chayote, why did drop that anvil on my client's head, Mr. Roadrunner?", "No reason, that's just what I do", "Case dismissed due to lack of motive!"
        sova 5y ago

ngm___ 5y ago

this part takes the cake! JPMorgan says Tesla still owed 228,775 shares when it terminated the deal, and that those shares are worth $162,216,628.81 based on Tesla’s stock price at the time. (Potentially worse for JPMorgan, it had hedged its warrant agreement with Tesla by maintaining a short position against Tesla’s stock. When Tesla didn’t settle the remaining shares, the bank had to buy the same amount on the open market to cover that hedged bet.)

ksec 5y ago

It seems rather strange that JPMorgan can change the strike price at any time they felt OK. Can someone provide a reasonable explanation for this?

shapefrog 5y ago
They cant. The contract contains remedies for corporate actions, which result in an adjustment by a calculating party defined in the contract. Corporate action happened and the agent adjusted the warrants.
phyalow 5y ago
I agree, JPMorgan is the calculation agent in this case and any ISDA is clear cut around their ability to unilaterally make pricing decisions. I suspect the issue in this case is more a dispute around whether or not the strike adjustments they made with respect to the “funding secured” fiasco are valid (or fair). I cant see a reason why an adjustment and not a total reversal to that adjustment are valid - simply put the mechanical economics of the shares did not change, yet JPMorgan felt entitled to change them. In anycase it is likely Tesla will lose this as ISDA related disputes are usually in the favour of the issuer (calc agent) with significant precedence.
- shapefrog 5y ago
  > I cant see a reason why an adjustment and not a total reversal to that adjustment are valid - simply put the mechanical economics of the shares did not change > Agreements call for an adjustment either “on or after the relevant date of such Announcement Event.” If your employer fires you then a day later rehires you, are you in the exact same position as before? Does it change your perception of your employer? If something makes you sad and it is followed by an equal amount of happiness are you in the same emotional state as before? "funding secured" and "there is no money" were two seperate and distinct corporate events. They may have been a net wash on the share structure, but they did not elicit equal market reactions, and the market reaction is what the contract is contractually obligated to be adjusted for.