Twitter shareholders are suing Twitter and Elon Musk over the late disclosure of several facts relating to the acquisition, as well as Musk’s tweets presenting false statements and manipulating the stock market.
In a class action lawsuit filed by shareholder William Heresniak on Wednesday in the Northern District of California, the complaint claims Musk and Twitter are violating California corporations code in the ongoing acquisition expected to close later this year. This adds to another shareholder’s lawsuit filed in April over Musk’s late disclosure of his stake in Twitter. Musk, CEO of Tesla and SpaceX, has a pending deal to buy the social media company for $44 billion but recently said the acquisition was on hold.
The complaint alleges that Musk failed to disclose on time his approximately 9% stake in Twitter, his invitation to join the company’s board and his intention to acquire Twitter. Shareholders also claim that Musk’s tweets throughout May are false statements and engage in market manipulation of Twitter’s stock in order to drive the purchase price down.
“Musk quickly acted to attempt to mitigate these personal risks to himself by engaging in unlawful conduct that moved the price of Twitter’s stock down,” the complaint noted. “Musk proceeded to make statements, send tweets, and engage in conduct designed to create doubt about the deal and drive Twitter’s stock down substantially in order to create leverage that Musk hoped to use to either back out of the purchase or re-negotiate the buyout price by as much as 25% which, if accomplished, would result in an $11 billion reduction in the Buyout consideration.”
This conduct is illegal and violates the California Corporations Code, the complaint said. Additionally, due to Musk’s late disclosure of his stake in the company, the complaint alleges that he saved himself some $156 million. This is also market manipulation and allowed him to purchase Twitter stock at an “artificially low price,” according to the complaint.
“Musk’s disregard for securities laws demonstrates how one can flaunt the law and the tax code to build their wealth at the expense of the other Americans. Musk’s insider trading profits may come with a slap on the wrist in the form of a fine from the SEC but will probably be limited to hundreds of thousands of dollars, according to legal and security experts.”
Earlier this month, Musk said the deal was “temporarily on hold” while he sorted out metrics on the total spam and fake accounts on the platform. This had many doubting the deal will go through and speculating whether this is a move to stall and force a lower price.
The complaint this week claims that Musk’s comment is misleading and false, because he had waived detailed due diligence under the buyout contract. This conduct also harms Twitter shareholders and caused the company’s stock to plummet by 25%, according to the lawsuit.
“Thus, Musk had and has no right to cancel the buyout based on any results from due diligence concerning the number of spam/fake accounts at Twitter. Musk then continued issuing false and disparaging tweets about Twitter in an effort to drive its stock price down further,” the complaint said.
Pamela Chelin contributed to this report.