Twitter shareholders have filed a lawsuit accusing Elon Musk of engaging in “unlawful conduct” aimed at casting doubt on his bid to buy the social media company.
The lawsuit, filed late Wednesday in U.S. District Court for the Northern District of California, alleges that the billionaire Tesla chief executive sought to drive down Twitter’s stock price because he wanted to back out of the deal or negotiate a sharply lower purchase price.
San Francisco-based Twitter is also named as a defendant in the lawsuit, which seeks class-action status as well as damages.
Representatives for Musk did not immediately return a message for comment on Thursday. Twitter declined to comment.
Musk last month offered to buy Twitter for $44 billion, but later said the deal could not go ahead unless the company provided information on how many accounts on the platform were spam or bots.
However, the lawsuit states that Musk dropped due diligence on his proposal to “take it or leave it” to buy Twitter. That meant he gave up his right to see the company’s non-public financials.
Also, the issue of bots and fake accounts on Twitter is nothing new. The company paid $809.5 million last year to settle allegations that it inflated its growth rate and monthly user data. Twitter has also disclosed its bot estimates to the SEC over the years, while also warning that its estimates may be too low.
To fund some of the acquisitions, Musk has been selling Tesla stock, which has lost nearly a third of its value in the electric car maker since the deal was announced on April 25.
In response to Tesla’s slump, a Twitter shareholder lawsuit alleges that Musk has been discrediting Twitter, violating non-disparaging and nondisclosure clauses in his contract with the company.
“In doing so, Musk hoped to drive down Twitter’s stock price and then used that as an excuse to try to renegotiate the acquisition,” the lawsuit said.
Twitter shares closed at $39.54 on Thursday, 27% below Musk’s $54.20 offer.
Before announcing the Twitter acquisition, Musk disclosed in early April that he had bought a 9% stake in the company. But the lawsuit alleges that Musk did not disclose his stake within the time frame required by the Securities and Exchange Commission.
The lawsuit says the stake he ultimately disclosed to the SEC was “false and misleading” because he used a form intended for “passive investors” — which wasn’t the case for Musk at the time because he had acquired position on Twitter’s board of directors and is interested in acquiring the company.
Musk has benefited more than $156 million for failing to disclose his increased stake in a timely manner, as Twitter’s stock price could have been higher if investors knew Musk was increasing his stake, the lawsuit said.
“By delaying the disclosure of his stake in Twitter, Musk participated in market manipulation and purchased Twitter stock at artificially low prices,” the lawsuit states.
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