In a new lawsuit , Twitter shareholders are suing Elon Musk, alleging that he manipulated the company’s stock price for personal gain in the context of agreeing to buy the company.
The lawsuit represents a group of Twitter investors. But allow any shareholders to receive financial compensation.
The complaint centers on Musk’s behavior since signing the purchase agreement with Twitter’s board of directors on April 25, in particular his recent statement that the deal could not go ahead without more information about the bot’s accounts across the platform.
Twitter shareholders allege that after signing the agreement, Musk began making statements, tweeting and engaging in behavior designed to create doubt about the deal and significantly lower the company’s share price in order to create leverage that Musk hopes to use to either back down from the purchase or renegotiate the purchase price.
The complaint said Musk’s conduct was, and continues to be, unlawful, in violation of California corporate law, and in breach of the contractual terms he agreed to in the transaction.
The lawsuit was filed in federal district court in San Francisco and argues that Musk intentionally reduced the company’s stock to get a better deal price.
The complaint states that the fair market value of Twitter’s shares has been adversely affected by Musk’s false statements and wrongful conduct.
The lawsuit cites Musk’s decision to waive an audit or review as a condition of the acquisition. Along with his subsequent claim that the company had misrepresented the number of bots across its platform.
According to the complaint: Musk was aware at the time that the platform had a certain amount of fake accounts and accounts controlled by bots and settled a lawsuit based on fake accounts worth millions of dollars. Musk tweeted about this issue several times in the past, before making his bid to acquire the company with a full knowledge of the bots.
The lawsuit alleges that Musk was likely trying to obtain an opponent by questioning his commitment and belittling the company.
Twitter stock drops dramatically because of Mask
Since Musk’s initial commitment to buy the company was announced, technology shares have begun to decline. Including Tesla, which accounts for the vast majority of Musk’s fortune.
After Musk’s comments, Twitter shares also fell significantly. The lawsuit claims that this phenomenon is unusual, given the company’s agreed purchase price.
While Musk claimed that the deal was on hold, there was no official mechanism to back up that claim. Company leaders encouraged employees to move forward as if nothing had changed. They pointed out that there is no such thing as a pause in a binding agreement to buy the company.
The lawsuit also alleges that Musk deliberately delayed filing a disclosure form when his stake in the company exceeded 5%. This allowed him to continue buying shares at a discount.
After Musk’s purchases became public knowledge after the form was submitted, the company’s stock rose by nearly a third.
Uncertainty about Musk’s public statements had a material impact on the takeover bid. This sent Tesla’s stock so low that Musk had to abandon plans to secure financing through loans against his holdings in the company.
Musk told the Securities and Exchange Commission that he is providing an additional $6 billion in equity financing to offset expired loans.