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Twitter shareholders have accused Elon Musk of engaging in “illegal behavior” aimed at casting suspicion over his bid to buy the social media company.
The lawsuit, filed late Wednesday in the U.S. District Court for the Northern District of California, alleges that Twitter tried to lower its stock price because the billionaire Tesla CEO wanted to walk away from the deal or negotiate a significantly lower purchase price.
San Francisco-based Twitter is also a defendant in the lawsuit seeking damages as well as class action status.
A representative for Musk did not immediately respond to a message for comment on Thursday. Twitter declined to comment.
Musk offered to buy Twitter for $44 billion last month, but later said the deal could not continue until the company released information about how many accounts on the platform were spam or bots.
However, the lawsuit states that Musk waived due diligence due to his “take it or leave it” offer to buy Twitter. This means that the company has waived its right to look after its non-public finances.
Also, the problem of bots and fake accounts on Twitter is nothing new. The company paid $809.5 million last year to settle allegations that it exaggerated its growth rate and monthly user numbers. While Twitter has disclosed its bot estimates to the Securities and Exchange Commission for years, it also warned that its estimate may be too low.
To fund part of the purchase, Musk is selling shares of Tesla, and shares of the electric car maker have lost nearly a third of their value since the deal was announced on April 25.
In response to the falling value of Tesla’s stock, Twitter shareholders’ lawsuit alleges that Musk defamed Twitter and violated both the disdain and nondisclosure clauses of his contract with the company.
“In doing so, Musk hoped to lower Twitter’s stock price and then use that as an excuse to try to renegotiate the purchase,” according to the lawsuit.
Shares of Twitter closed at $39.54 on Thursday, 27% below Musk’s $54.20 bid.
Before announcing his offer to buy Twitter, Musk announced in early April that he had bought a 9% stake in the company. The lawsuit, however, says that Musk did not disclose the stock within the timeframe stipulated by the Securities and Exchange Commission.
And the lawsuit says the eventual disclosure of the stock to the SEC was “false and misleading” as it used a form designed for “passive investors” – Musk wasn’t at the time because he was offered a position on Twitter’s board and was interested in acquiring the company. .
According to the lawsuit, Twitter’s stock price could have been higher had investors known that Musk had increased his holdings, as Musk benefited more than $156 million from not disclosing his increased stake in a timely manner.
“By delaying announcing his stake in Twitter, Musk engaged in market manipulation and bought Twitter shares at an artificially low price,” the lawsuit says.
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