Twitter shareholders have filed a lawsuit accusing Elon Musk of “unlawful conduct” to cast doubt on his bid to buy the social media company.
The lawsuit filed late Wednesday in the US District Court for the Northern District of California alleges that the billionaire Tesla CEO has tried to lower Twitter’s stock price because he wants to either walk out of the deal or negotiate a significantly lower purchase price.
San Francisco-based Twitter is also named as a defendant in the lawsuit, which seeks both class-action status and damages.
A Musk representative did not immediately respond to 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 through until the company provides information on how many accounts on the platform are spam or bots.
However, the lawsuit notes that Musk waived due diligence for his “take it or leave it” offer to buy Twitter. This means he has waived his right to inspect the company’s non-government finances.
Moreover, the problem of bots and fake accounts on Twitter is nothing new. The company paid $809.5 million last year to settle claims it overestimated its growth rate and monthly user numbers. Twitter has also disclosed its bot estimates to the Securities and Exchange Commission for years but warned that its assessment could be too low.
Musk has sold Tesla stock to fund part of the acquisition, and shares in the electric car maker have lost nearly a third of their value since the deal was announced on April 25.
In response to the declining value of Tesla’s stock, the Twitter shareholders’ lawsuit alleges that Musk is denigrating Twitter and has violated both the non-disparaging and non-disclosure clauses of his contract with the company.
“Through this, Musk hoped to lower Twitter’s share price and then use that as a pretext to renegotiate the acquisition,” the lawsuit said.
Shares of Twitter closed on Thursday at $39.54, 27% below Musk’s offer price of $54.20.
Before announcing his offer on Twitter, Musk announced in early April that he had bought a 9% stake in the company. But according to the lawsuit, Musk failed to disclose the stake within the timeframe required by the Securities and Exchange Commission.
And the lawsuit says his eventual disclosure of the bet to the SEC was “false and misleading” because he used a form intended for “passive investors” — which Musk wasn’t at the time. After all, he had a position on the board of Twitter was offered and interested in taking over the company.
Musk profited more than $156 million from his inability to disclose his increased stake promptly, as Twitter’s stock price could have been higher had investors known Musk was raising his stakes, the lawsuit alleges.
“By delaying his disclosure of his stake in Twitter, Musk engaged in market manipulation and bought the Twitter stock at an artificially low price,” the lawsuit says.
