A lawsuit filed in San Francisco, Calif., federal court on Wednesday says that Elon Musk acted unlawfully when the funding for his proposed purchase of co-defendant Twitter began to slip. According to the shareholder complaint, Musk engaged in illegal market manipulation and offered to purchase securities from Twitter shareholders while falsely disparaging the company in violation of the California Corporations Code.
The allegations center on Musk’s ongoing attempt to purchase Twitter for approximately $44 billion. The 42-page complaint details Musk’s wealth and his 90 million Twitter following before delving into the timeline of what the plaintiff sees as questionable events.
As another lawsuit recently took issue with, Musk purportedly secured a windfall of approximately $156 million after he failed to timely file a federal regulatory form disclosing that he exceeded the 5% ownership threshold of Twitter. According to the complaint, this allowed him to buy additional shares at an artificially low price.
Among other purported missteps, the complaint cites Musk’s pledge of his Tesla stock as collateral for a $12.5 billion loan to finance the buyout. The lawsuit says Musk gained motive to manipulate the market when, and since Musk’s announcement, Tesla’s shares declined by more than 37%. Because the loss in their value put Musk at risk of a margin call or a requirement to pump more cash into Tesla, he “quickly acted to attempt to mitigate these personal risks to himself by engaging in unlawful conduct that moved the price of Twitter’s stock down,” the complaint states.
The shareholder points to purportedly untrue, disparaging remarks Musk tweeted about Twitter, including a May 13 broadcast when Musk said that the deal was “temporarily on hold” while he looked into the true percentage of fake or bot-controlled Twitter accounts. The complaint avers that the buyout was not “on hold,” citing Musk’s contractual inability to pause the deal.
Moreover, Musk’s statement was misleading because it implied that buying the company was conditioned on his satisfaction. In reality, he “specifically waived detailed due diligence as a condition precedent to his obligations under the buyout contract,” the complaint states.
Musk’s conduct not only harmed Twitter shareholders by causing its stock to plummet by approximately 25%, but also threw Twitter employees into tumult, the complaint adds. The lawsuit points to both media coverage of the unpredictable work environment Musk created, as one executive put it, a “chaos tax,” while adding that Musk bullied Twitter employees and threatened that he would stop censoring hate speech.
The complaint states five counts for relief: three under the California Corporations Code’s anti-fraud provisions, one for declaratory and injunctive relief against Twitter and Musk, and one for unjust enrichment against Musk. The plaintiff seeks to certify the lawsuit as a class action on behalf of Twitter shareholders harmed by Musk’s alleged misconduct, as well as an award of compensatory and punitive damages.
The plaintiff is represented by Bottini & Bottini Inc. and Cotchett, Pitre & Mccarthy LLP.
