By Nathalie Voit
Twitter shareholders are suing Elon Musk and the social media company itself over their mishandling of a tumultuous takeover bid that is still in progress.
The stockholders’ lawsuit, Heresniak v. Musk et al., was filed in a San Francisco federal district court on May 25.
According to the docket report, Twitter shareholders allege that Musk violated the California Corporations Code on multiple fronts. In one violation, William Heresniak, the Twitter shareholder who filed the proposed class-action lawsuit on behalf of the company, said Musk intentionally waited to disclose his 9.2% stake in Twitter to benefit financially.
According to a letter dated April 4 but made public by the U.S. Securities and Exchange Commission (SEC) last week, the SpaceX and Tesla billionaire ought to have informed federal regulators about his substantial stake in the company within 10 days of acquiring more than 5% of Twitter’s holdings, which would have been on March 24. While Musk bought over 73 million shares of Twitter on March 14, he did not disclose the required information to the SEC until April 4, according to an SEC 13G filing released that day.
The suit also contends that Musk illegally benefited from insider knowledge about the company based on private talks with board members and executives, including former CEO and co-founder of Twitter Jack Dorsey and Silver Lake co-CEO Egon Durban, a Twitter board member with ties to Tesla. Dorsey is a longtime friend of Musk’s, according to Bloomberg.
In addition to these potential violations, the suit claims Musk’s erratic behavior surrounding the deal was designed to sow doubt about the proposition’s seriousness and benefit the billionaire personally.
“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 to re-negotiate the buyout price by as much as 25% which, if accomplished, would result in an $11 billion reduction in the Buyout consideration,” the shareholders’ complaint stated, according to CNBC.
Musk said earlier this month he would put the Twitter deal on hold pending more information about the severity of the platform’s “spam bots” problem.
“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Musk tweeted on May 13, sending shares of the company plummeting nearly 10% that day.
In a follow-up tweet a few hours later, the Tesla CEO noted he was still “committed to the acquisition.”
Twitter stock has fallen over 12% since Musk announced his acquisition bid on April 14.
