Tesla Inc (NASDAQ: TSLA) is in the midst of a dispute with JP Morgan Chase & Co. (NYSE: JP) over warrants. The latter has filed a lawsuit against the company for $162.2 million, including expenses, attorney fees, and interest. According to the bank, Tesla has breached the terms of their contract regarding the re-pricing of warrants.
Bank made adjustments to contract after Elon Musk’s tweet
Tesla was to deliver cash or shares if share prices went over a certain amount by the given expiration date. However, JP Morgan adjusted the warrant value when Elon Musk, the CEO of Tesla, tweeted that he might take the company private for $420 a share in August 2018. It was also readjusted when he changed his mind on taking Tesla private.
JP Morgan states that the contract gave it a right to adjust to protect involved parties from the economic impact of big transactions Tesla made. Tesla, on the other hand, said that the bank acted too swiftly, indicating a willingness to take advantage of stock volatility.
The SEC fine Musk for misleading tweets
In the following 16 months, Tesla stock experienced an all-time low of $177 per share by June 2019. However, the company managed to have a share value of $420 in December 2019. Despite the growth, the company the Securities and Exchange Commission charged Tesla for securities fraud. Musk and Tesla paid $20 million each in fines as the tweets were deemed misleading. Musk also had to step down as Tesla’s chairman for three years.
JP Morgan says that the company did not deliver 228,775 shares of its common stock. As a result, the bank was left with an open hedge position amounting to the shortfall. By the time the warrants expired in 2021, Tesla’s share values had increased by ten times. JP Morgan states that this meant the company should have over a portion of its stock or shares.
Since Tesla never agreed with the changes, it has only paid JP Morgan an undisputed amount of the agreement.
According to a spokesperson for JP Morgan, the bank gave Tesla several chances to fulfill the contract. However, the company has refused to do so, forcing JP Morgan to take legal action.
Tesla has not made any comment in regards to the lawsuit.
