The lawsuit, filed late Wednesday, accuses Musk of deliberately making market-moving statements—such as his claim that the deal is “on hold” until he sees more data about fake and spam accounts—that were calibrated to “drive Twitter’s stock down substantially in order to create leverage.”
The scheme was inspired by the declining value of
“Musk’s market manipulation worked,” it says. “Twitter has lost $8 billion in valuation since the buyout was announced.”
A representative for Twitter declined to comment Thursday. Tesla didn’t immediately respond to a request for comment on behalf of Musk or the company.
According to the proposed class action, Musk’s moves were aimed at staving off the risk of a margin call stemming from the fluctuating value of shares in Tesla, the electric vehicle maker he leads, which is “worth much less now than when Musk agreed to buy Twitter” after a 37% drop over the past month.
The suit came the same day Musk disclosed that he was partly restructuring the transaction to offset that risk by providing more than $6 billion in additional equity financing.
The case is the latest in a wave of legal challenges confronting Musk’s proposed acquisition of Twitter, a leading social network and hub for online public discourse worldwide. The transaction, disclosed barely a month ago, has drawn scrutiny from regulators and a spate of shareholder litigation.
The investor cases include a pension fund lawsuit claiming Musk became an “interested stockholder” subject to a mandatory three-year deal delay when he reached voting agreements beforehand with other major Twitter investors, including co-founder Jack Dorsey and a billionaire Saudi prince.
The acquisition has also reportedly raised concerns among advertisers skittish about Musk’s pledge to transform Twitter into a safe space for absolute free speech.
Musk—a prolific tweeter with 95 million followers—frequently uses the platform to blast perceived censorship by Twitter and other social media companies. The new shareholder complaint is far from the first time his tweeting has led to legal woes.
He previously reached a 2018 settlement with the Securities and Exchange Commission that requires any Tesla-related tweets to be approved by a so-called “Twitter sitter,” and he has faced multiple investor suits since then accusing him of exposing Tesla to liability and losses by breaching the SEC pact.
Musk has sold billions worth of Tesla stock in recent weeks as part of his plan to finance the Twitter takeover.
Cause of Action: Sections 24500, 25401, 25402, 25500, 25501, and 25502.5 of the California Corporations Code; unjust enrichment.
Relief: Actual and punitive damages, an injunction, costs, fees, and interest.
Potential Class Size: Thousands of holders of millions of Twitter shares.
Attorneys: The investor is represented by Bottini & Bottini Inc. and Cotchett, Pitre & McCarthy LLP.
The case is Heresniak v. Musk, N.D. Cal., No. 22-cv-3074, complaint filed 5/25/22.