Elon Musk: JPMorgan banks ask US regulators to assess Tesla debt

Image copyright Getty Images Image caption Musk tweeted that he was the victim of extortion on 7 June 2018

JPMorgan Chase & Co said on Friday it had asked US regulators to determine whether Tesla owes it more than $162 million (£123m) because of a tweet from the company’s chief executive, Elon Musk.

In May, Musk said he had funding lined up to take Tesla private in a deal that valued the electric car maker at $420 a share.

Musk later backed down on the offer, saying shareholders were opposed to a deal.

Wall Street analysts have not been clear on Tesla’s need for a debt capital raise this year.

The bank’s lawsuit against Musk and Tesla (link in US code) alleges that the chief executive’s tweet led to a spike in Tesla’s stock price and a decline in the bank’s own investment, while inadvertently giving Musk an opportunity to extort money from the bank.

It also says that the bank was “passed on by Tesla” in a number of recent deals, which it expected would expand it its financial foothold at the company.

Tesla denies the allegations, saying it disputes the bank’s choice of legal action, and that it’s cooperating with authorities in their investigation.

Tesla has also come under fire for its executive pay package, which is seen as too generous by some analysts.

The initial proposal included a $72m payout for Musk and another $16m for Tesla finance chief Deepak Ahuja if the company is able to turn a profit, in a first quarter earnings report.

The initial proposal also included a condition that at least 10% of Tesla’s shares not be held by a director for over 12 months, a punishment that would be extended to a majority if the board does not fulfil its obligations.

The proposed pay package was voted down in April 2018, with only about 24% of shareholders approving it.

Musk, in a response to the lawsuit, called the $162m sum “the result of an error on our part”.

In the Friday suit, JPMorgan claims it signed a letter of intent to buy debt securities from Tesla and Tesla Capital Finance LLC.

The deal was to be consummated by 7 June 2018, but instead, Musk tweeted at 1:45pm GMT that he was the victim of extortion.

Tesla’s share price immediately plummeted, and after a three-day rollercoaster ride, its stock closed at $311.45. It eventually opened the week at $294.00, down 7% for the day.

According to the suit, an investment banker, who worked for JPMorgan, informed the bank’s clients of Musk’s tweet, and declined to be named.

When the banker called JPMorgan’s executives in Washington DC to explain what happened, the group “dropped their jaws in disbelief”, the suit says.

One executive, looking panicked, said: “Elon did something terrible,” according to the suit.

The banker went on to explain to the executives that the tweet put Tesla into violation of regulatory rules that require companies to disclose material information as soon as they know it.

But, the suit says, the bankers were not told that such a violation would affect the bankers’ buyout deal with Tesla.

In addition, the lawsuit says that Musk later changed his mind about his offer to buy out shareholders at $420 a share, and backtracked on the $420 offer.

Musk then called JPMorgan again, on 8 June 2018, and gave it “the address for the headquarters of his extortionist syndicate of junk lawyers,” the suit alleges.

The filing claims that some days later, the bankers agreed to hire a team of junk lawyers, and Musk said he would have met the group by the next day.

The banker told the bank’s lawyers that he also had trouble getting Tesla’s chief accounting officer, David Morton, to show up for a scheduled phone call.

According to the suit, Mr Morton, who was later named Tesla’s CFO, informed the bank’s attorneys that he knew nothing about Mr Musk’s offer to pay extortionists $420.

The suit said Mr Morton assured the bank’s lawyers that he had already reported the idea to senior management.

In a statement, JPMorgan said it had asked a court to determine whether it was harmed by Mr Musk’s “fraudulent or reckless conduct”.

If successful, the bank would be entitled to recover its losses from Mr Musk and Tesla and expenses, it said.

Get the latest Tesla stock price here.

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