Twitter Inc. shareholders filed a lawsuit late Wednesday in a federal district court in San Francisco, accusing Musk of manipulating Twitter’s stock price and benefiting from that during his takeover bid.
The lawsuit claims that prior to making the bid, Musk (pictured) failed to reveal that he already had a 5% stake in Twitter. He then went on to buy more stock, giving him a 9.2% stake in the company. “By delaying his disclosure of his stake in Twitter, Musk engaged in market manipulation and bought Twitter stock at an artificially low price,” the lawsuit says, which is led by Virginia resident William Heresniak and on behalf of other investors.
The lawsuit also says that Musk didn’t disclose the fact that before he made the offer to buy Twitter, he’d already been invited to be part of its board. Then once he had made it clear he wanted to buy the company, he engaged in what the plaintiffs say is illegal behavior.
“Musk proceeded to make statements, send tweets, and engage in conduct designed to create doubt about the deal and drive Twitter’s stock down substantially in order to create leverage that Musk hoped to use to either back out of the purchase or re-negotiate the buyout price,” the lawsuit says. “As detailed herein, Musk’s conduct was and continues to be illegal, in violation of the California Corporations Code, and contrary to the contractual terms he agreed to in the deal.”
During the weeks that the deal has been on the table, Musk has questioned the veracity of Twitter in regard to how many of Twitter’s users are actually bots sending spammy messages. Once he’d done that, Twitter’s stock went on the decline, something which the plaintiffs said was planned.
Musk is also accused of buying Twitter shares after receiving insider information from his friend and then Twitter chief executive Jack Dorsey. He was also pretty close to one of Twitter’s board members. Dorsey stepped down from the Twitter board this week, and in doing so he pledged support for a new kind of Twitter under Musk.
Musk has yet to comment on the lawsuit.