Almost half of outstanding stock on share trading would be affected if stockholders held only dispute about corporate fraud
JPMorgan Chase, a key lender to electric car company Tesla, is suing Elon Musk, the chief executive of the company, over tweets about taking the company private.
The lawsuit, filed in New York state court, alleges Musk made a tweet on 7 August in which he said he had “funding secured” to take Tesla private for $420 a share, and that the deal could happen in a week.
Despite being worth at least $25bn, Tesla’s shares closed down 5% after the tweet, and dropped an additional 8% on 8 August as Musk confirmed the funding was there for a deal in a tweet.
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JPMorgan Chase sued Musk and his brother Kimbal Musk for fraud and is asking a judge to require them to be named as defendants in the case. It alleges they lied to investors in the tweet and that the brothers collaborated to conceal the lack of progress on a deal, and misled investors with additional tweets and email messages.
Despite the big drop on the day, shares in Tesla have climbed more than 56% in 2018 on confidence that a funding deal was soon to materialise. The shares fell 1.6% on Friday after the lawsuit was announced, and were down another 3.6% on Monday morning.
The bank’s lawyers allege Tesla’s board members sought to “interfere with or sabotage the negotiations over the proposed transaction” and tried to impede Mueller and Musk’s efforts to obtain documents in the lawsuit.
JPMorgan was not part of a $2bn funding deal that Musk has said Tesla reached with Saudi Arabia’s sovereign wealth fund in July, according to the lawsuit.
Tesla declined to comment. Tesla has denied that Musk deceived anyone with the tweets.
The bank is asking the court to limit the number of investors that could sue in this case, a person familiar with the litigation said.
Almost half of Tesla’s outstanding stock on share trading – which would make this a particularly big case – would be affected if investors held only the dispute over corporate fraud, according to the people.
JPMorgan is required to hold shares for regulatory purposes. In this case, many shareholders receive information by way of tender offer notices from firms such as JPMorgan.
JPMorgan’s lawyers could use the lawsuit as an opportunity to seek penalties from Musk and possibly his brother for the statements about the deal he made, said an attorney for one of the shareholders.
“It is very positive that someone like JPMorgan is standing up for investors and seeking the due process, especially under the state courts and not federal,” said the lawyer, Andy Metzger.
The plaintiffs are suing Tesla, Elon Musk, his brother Kimbal Musk, chief accounting officer Dave Morton, and Tesla directors Antonio Gracias, Gholam Kavilian, Robyn Denholm, Antonio Alemán, Joan Sweeney, Robyn Denholm, and Forrest Lucas. The lawyer declined to comment on the lawsuit’s timing or on why he did not name Musk’s other backer, Saudi Arabia’s sovereign wealth fund.