It may seem odd that the news company Uber, which has come under fire for allegedly bribing a commissioner in hopes of winning a permit in Russia, is the first company to name a recipient of gift-ban compliance. Tesla, a former Journal best-selling author and the greatest trend-setting automobile manufacturer in history, was the first firm named in a lawsuit recently filed by JPMorgan Chase for failing to disclose an illegal gift of $12.5 million (about 1 million pounds), received by the company during its initial public offering and despite knowing it was illegal to do so.
The lawsuit was filed by New York State Attorney General Barbara Underwood, who accused the company of accepting a secretly arranged special “shares” from Michael Volk, an owner of GTI Financial Inc., in exchange for Tesla investing in the Volk Foundation, a charity the company supposedly claimed it would not support. The donation was made through Cygnet Capital Investments, according to JPMorgan Chase, but disclosed to little public notice.
The lawsuit names Volk as “Director,” but alleges that he was operating as a “special adviser” to Tesla while his friends and family members received secret shares and arranged for them to be sold. Tesla later admitted that the first share-gift, given to Tesla CEO Elon Musk, was illegal and intended to directly help his financial position at the company.
The lawsuit describes the Deutsch Continuity Fund (DCF), which Tesla later acknowledged, as a “bribe to induce Tesla to make an investment in the Volk Foundation.” The Deutsch Continuity Fund gave the Volk Foundation, an affiliate of Cygnet Capital, shares issued by Tesla, according to Volk’s son, a prominent attorney who worked on the Tesla IPO. Volk had a financial interest in Tesla, which he told Tesla would provide him with a financial incentive to make the donation, the lawsuit states.
Volk received shares valued at $122.7 million. He subsequently sold all the shares to Tesla, reaping more than $62 million. Volk did not register the Deutsch Continuity Fund’s offering document, nor his stock sales agreement with Tesla, with New York State, according to the lawsuit. The Stock Transfer and Trust Company, a unit of JPMorgan Chase, had no knowledge of the stock gift, which was more than 9 percent of the company’s initial offering price.
JPMorgan Chase said in a statement that Musk was the only individual who received a gift worth more than $1 million in connection with the Tesla IPO, and that its investigation showed the remaining $11.3 million in the Deutsch Continuity Fund was later gifted to other individuals. JPMorgan Chase added that it was “reaching out to a number of individuals” to “reached out to a number of individuals to express our displeasure with this conduct and we plan to address this with each of these individuals,” according to the statement.
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