Several Twitter shareholders have banded together and filed a lawsuit against Tesla founder Elon Musk, alleging that he is guilty of market manipulation through the handling of his plans to buy the social media company. The lawsuit claims that Musk's actions had resulted in volatile price swings of Twitter's stock.
Musk disclosed his massive stake in Twitter early last month, followed by an announcement of his intention to acquire the company for $44 billion. Musk said he would pledge a large portion of his Tesla holdings as collateral to fund his planned acquisition.
Twitter's stock has declined more than 12% since Musk's purchase proposal, while Tesla's stock price is down around 28% as part of a broader sell-off in tech stocks. Since Musk originally announced his substantial stake in Twitter, Tesla shares had dropped more than 40% as of Wednesday.
In the proposed lawsuit, Twitter shareholders claimed that Musk was guilty of violating California's corporate laws and engaging in market manipulation. The shareholders claimed that Musk knowingly delayed disclosing his stake in the company to become one of its board members.
The shareholders also alleged that Musk had insider information about the company through his private dealing with its executives and other board members. This included alleged private conversations with the company's former CEO, Jack Dorsey, and board member, Silver Lake co-CEO Egon Durban. Dorsey resigned as one of the company's board of directors on Wednesday, while Durban was voted off by shareholders.
Musk was also accused of intentionally casting doubt on whether the deal would go through even after he signed a contract. Musk announced earlier this month that he was putting his plans to buy Twitter "on hold" in order to learn more about illicit activities on the network, including information regarding false or automated accounts. Shareholders claimed that his complaints about "bots" were part of a plot to get a better price or to terminate the purchase.
The complainants said Musk had continued to make statements and post tweets about his plans, which had created doubt amongst investors. They continued that Musk's actions directly resulted in Twitter's stock plummeting, which would be a big advantage for him as he could use it to either back down from the deal or renegotiate a lower acquisition price. The lawsuit claimed that Musk effectively saved as much as $11 billion if he were to proceed with the deal.
Companies in California are required by law to disqualify board members from voting on proposals if they have committed wrongdoing related to those proposals. The lawsuit, Heresniak v. Musk et al., was filed in the Northern District Court of California, and the shareholders are demanding a jury trial.