Elon Musk has been hit with a lawsuit from a Twitter shareholder who accuses the Tesla CEO of criticizing the company he has agreed to buy and sowing doubts about the deal in order to drive down Twitter’s value.
The proposed class action, filed Wednesday in the U.S. District Court for the Northern District of California, claims Musk aimed to drive down Twitter’s stock price because he either wants to walk away from the deal or negotiate a lower purchase price.
The suit, which also names Twitter, argues that Musk’s attacks violated both the nondisparagement and nondisclosure clauses of his contract with the company.
“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 suit states.
“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,” the suit adds.
Musk made an agreement last month to purchase the social media company for $44 billion, but has since repeatedly publicly complained about Twitter. In particular, he has challenged the number of bots or spam accounts, which Twitter has stated amount to less than 5% of accounts. Musk wildly speculated at a tech conference earlier this month that the percentage of fake accounts could be as high as 95%.
He also announced he was putting the purchase on “hold,” though insisted he was still “committed” to the deal. He later said a lower purchase price wasn’t out of the question.
Since Musk’s acquisition bid — and the grumbling — Twitter’s share price has dropped more than 12%, and Tesla’s is down about 28%.
Twitter’s shares closed Thursday at $39.54 — 27% below Musk’s $54.20-per-share offer to buy the company.
Musk was using Tesla stock to finance the Twitter purchase. But he has since upped his personal funding by more than $6 billion and secured an additional $6.25 billion in equity financing, according to regulatory filings on Wednesday.
The lawsuit also accuses Musk of insider trading by purchasing stock while he was talking to company board members, and failing to meet a legally required deadline to inform the Securities and Exchange Commission that he had acquired a 5% stake in the company. The SEC has sent a letter to Musk demanding an explanation for missing the deadline.
Musk could not be reached for comment, and he hasn’t issued any statement on the lawsuit.