Twitter shareholders are suing Musk, saying he lowered the share price

Barbara Ortutay, The Associated Press

Posted Thursday, May 26, 2022 7:40 PM EST

Twitter shareholders have filed a lawsuit accusing Elon Musk of engaging in “unlawful behavior” aimed at raising suspicions about his attempt 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 sought to lower Twitter’s stock price because he wanted to walk away from the deal or negotiate a much lower purchase price.

San Francisco-based Twitter is also named as a defendant in the lawsuit, which is seeking class action status in addition to damages.

A representative for Musk did not immediately respond to a letter 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 ahead until the company provided information about the number of accounts on the platform that 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 that he has waived his right to look into the non-public financial affairs of the company.

Additionally, the problem of bots and fake Twitter accounts is nothing new. The company paid $809.5 million last year to settle claims that were overstating its growth rate and monthly user numbers. Twitter also disclosed its bot estimates to the Securities and Exchange Commission for years, while also warning that its estimates could be too low.

To fund some of the acquisitions, Musk has been selling Tesla shares and the 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 drop in Tesla’s stock value, the Twitter shareholder lawsuit alleges that Musk was slandering Twitter, violating both the non-disclosure and non-disclosure clauses in his contract with the company.

According to the lawsuit, “By doing so, Musk hoped to lower Twitter’s share price and then use that as an excuse to try to renegotiate the purchase deal.”

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

Before announcing his bid to buy Twitter, Musk revealed in early April that he had bought a 9% stake in the company. But the lawsuit says Musk did not disclose the stake in the time frame required by the Securities and Exchange Commission.

The lawsuit says that his final disclosure of the stake to the Securities and Exchange Commission was “false and misleading” because he used a form intended for “passive investors” – which Musk was not at the time, because he was offered a position on Twitter’s board of directors and was interested in buying company.

Musk profited more than $156 million from his failure to disclose his growing stake on time, as Twitter’s stock price could have been higher had investors known that Musk was increasing his holdings, the lawsuit alleges.

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

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