Twitter shareholders filed a lawsuit against Elon Musk accusing him of engaging in “unlawful behavior” to sow doubt about his bid for the company’s purchase.
A lawsuit was filed Wednesday by the U.S. District Court in the Northern District of California claiming that the billionaire Tesla CEO sought to lower Twitter’s stock price, as he wanted to either walk away from the deal and negotiate a significantly lower purchase price.
Twitter, based in San Francisco, is also named as defendant in the lawsuit. The suit seeks both class action status and damages compensation.
Musk representatives did not respond to my request for comment on Thursday. Twitter declined to comment.
Musk offered to purchase Twitter last month for $44 billion. However, Musk later stated that the deal could not be finalized until the company provided information on how many accounts are spammed or bots.
However, the lawsuit states that Musk did not exercise due diligence in accepting Twitter’s “take it or lose it” offer. This means that he gave up his right to examine the non-public financial statements of the company.
The problem of fake accounts and bots on Twitter is not new. Last year, the company paid $809.5million to settle claims that it had overstated its monthly user growth rate and growth rate. Twitter also revealed its bot estimates to Securities and Exchange Commission over years. However, it cautioned that the estimate could be too low.
Musk sold Tesla stock to finance some of the acquisition. Shares in Tesla have lost almost a third since April 25, when the deal was announced.
The lawsuit brought by Twitter shareholders alleges that Musk has denigrated Twitter in response to Tesla’s falling share price. He also violated both the non-disparagement clauses and the non-disclosure clauses in his contract with Tesla.
According to the lawsuit, Musk “hoped to drive down Twitter stock prices and then use that to try to re-negotiate buyouts.”
Twitter shares closed Thursday at $39.54, which is 27% lower than Musk’s $54.20 offer price.
Musk revealed in April that he purchased a 9% stake in Twitter before he announced his bid to purchase it. The lawsuit claims that Musk failed to disclose the stake in the required timeframe by the Securities and Exchange Commission.
The lawsuit claims that Musk’s eventual disclosure to the SEC of his stake was false and misleading because he used a form for passive investors — which Musk was at the time not because he was offered a position on Twitter’s board and was interested buying the company.
Musk’s failure to inform investors of his increase in stake at Twitter was a win for him. Twitter’s stock price would have been higher if investors had known, according to the lawsuit.
According to the lawsuit, Musk “engaged in market manipulation by delaying his disclosure about his Twitter stake and purchased Twitter stock at an artificially high price”.