JP Morgan Chase & CO, the international bank and investment group, sued Tesla Inc (NASDAQ:TSLA) on Monday for US$162.2mln.
The Wall Street bank accused the electric vehicle manufacturer of “flagrantly” breaching a contract relating to stock warrants after its price soared.
The alleged breach refers to warrants over Tesla shares, sold by the bank in 2014 with an agreement to pay off if its ‘strike price’ was below Tesla’s share price upon the warrant’s expiration in June and July of this year, according to a complaint filed in the Manhattan federal court.
A warrant usually allows the issuer, in this case JPMorgan, to purchase shares in a company, Tesla, for a set price within a pre-determined window.
If the price of a share is below the strike price, neither party owes the other anything.
However, if the share price is higher than the strike-price upon expiration of the warrants, then there is an obligation to pay the difference to the issuer, in either cash or stocks.
JPMorgan claims it was within its rights to significantly reduce the strike price after Musk hinted at taking Tesla private in August 2018, an idea that was abandoned shortly after.
Since the reduction in strike price, Tesla’s stocks have soared, and JPMorgan says this requires the company to deliver its stock or cash under the contract established in 2014.