Twitter shareholders are suing Elon Musk, alleging his antics deflated the stock price

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 Wednesday night in the U.S. District Court for the Northern District of California alleges that Tesla’s billionaire CEO sought to drive down Twitter’s stock price because he wants out of the deal or negotiate a deal. significantly lower purchase price.

San Francisco-based Twitter is also named as a defendant in the lawsuit, which seeks class-action status as well as compensation for damages.

A representative for Musk did not immediately respond to a message for comment Thursday. Twitter declined to comment.

Offer “take it or leave it”

Last month, Musk offered to buy Twitter for US$44 billion, but later said the deal couldn’t go ahead until the company provided information on the number of accounts. on the platform that are spam or bots.

The lawsuit notes, however, that Musk waived due diligence for his “take it or leave it” offer to buy Twitter. That means he waived his right to look at the company’s non-public finances.

WATCH | The Twitter deal is “temporarily suspended,” Musk says:

Elon Musk says $44 billion Twitter deal is ‘temporarily suspended’

Elon Musk has said his planned US$44 billion purchase of Twitter is “temporarily on hold” pending details about spam and fake accounts on the social media platform, but he is “still engaged in the acquisition”.

Moreover, the problem of bots and fake accounts on Twitter is not new. The company paid $809.5 million last year to settle claims that it exaggerated its growth rate and monthly usage figures. Twitter has also disclosed its bot estimates to the Securities and Exchange Commission for years, while warning that its estimate may be too low.

To fund part of the acquisition, Musk sold Tesla shares and the electric car maker’s shares have lost nearly a third of their value since the deal was announced on April 25.

In response to Tesla’s plummeting stock value, Twitter’s shareholders lawsuit claims Musk disparaged Twitter, violating both the non-disparagement and non-disclosure clauses of his contract with the company.

“In doing so, Musk hoped to depress Twitter’s share price and then use it as a pretext to attempt to renegotiate the takeover,” according to the lawsuit.

Shares of Twitter closed Thursday at $39.54, 27% below Musk’s $54.20 offer price.

High level saga

Before announcing his offer to buy Twitter, Musk revealed in early April that he had purchased a 9% stake in the company. But the lawsuit says Musk failed to disclose the stake within the time required by the Securities and Exchange Commission.

And the lawsuit says his eventual disclosure of SEC involvement was “false and misleading” because he used a form intended for “passive investors” – which Musk was not at the time, as he was told. had offered a position on Twitter’s board of directors and was interested in buying the company.

Musk benefited more than US$156 million from his failure to disclose his increased stake in time, as Twitter’s share price could have been higher had investors known Musk was increasing his holdings, lawsuit alleges .

“By delaying disclosure of his Twitter stake, Musk engaged in market manipulation and purchased Twitter stock at an artificially low price,” the lawsuit states.