JPMorgan sues Tesla after Elon Musk's tweets
JP Morgan Chase is suing Tesla for $162m in federal court over tweets made by Tesla boss Elon Musk in 2018. The bank claims that Tesla has breached the terms of a contract signed to pertain to re-pricing the warrants.
A warrant is a security that entitles the holder to buy an additional number of shares at a specified price for a certain period of time. In most cases, this price is lower compared to the market one. According to the terms of the contract, if Tesla’s stock was at or above a certain price on the day the options expired seven years later, the company is obliged to pay JPMorgan a certain amount of money. In other words, it is the difference between the actual share price on that date and the strike price. Everything was going smoothly. The company's shares were getting more expensive and had already come close to the target level set by JPMorgan. However, Elon Musk’s tweet about a deal to take Tesla private at $420 a share sent shares down. Later, the company changed its mind about the deal. As a result, the company’s stock plunged.
Over the next 16 months, Tesla’s shares fell to a three-year low. In June 2019, they were worth just $177 per share. In December of the same year, the price exceeded $420 per share. Later, the Securities and Exchange Commission (SEC) accused Musk of securities fraud. Mr. Musk and Tesla paid $20 million each to settle the suit. Notably, Tesla’s lawyers wrote to JPMorgan declaring that the bank’s strike price adjustments had been "unreasonably swift and represented an opportunistic attempt to take advantage of changes in volatility in Tesla’s stock." "We have provided Tesla multiple opportunities to fulfill its contractual obligations, so it is unfortunate that they have forced this issue into litigation," a spokesperson for JP Morgan said in a statement. Time will show who will come out as the winner.