A lawsuit has been brought against Elon Musk by Twitter investors, claiming that he manipulated the company’s stock price to buy the stock at an artificially low price.
An investor lawsuit claims that Musk “manipulated the company’s stock price downward” during his engagement in the company, which is one of the headaches Elon Musk is dealing with in relation to his proposed takeover of Twitter.
According to a new Bloomberg/Yahoo story, investors claim that Musk saved $156 million by not declaring his purchase of more than 5% of Twitter by March 14 in a timely manner.
The investors also requested that they be recognized as a class and that punitive and compensatory damages be granted. Along with Musk, Twitter was named as a defendant, with investors claiming that the company did not do enough to investigate Musk’s conduct.
According to the lawsuit, his actions were intended to “drive Twitter’s stock down substantially in order to create leverage.”
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“Musk’s market manipulation worked.” According to a follow-up article by Bloomberg Law, “Twitter has lost $8 billion in valuation since the buyout was announced.”
Musk allegedly continued to buy stock after failing to disclose his shares, acquiring a 9.2 % stake, according to the lawsuit.
“By delaying his disclosure of his stake in Twitter, Musk engaged in market manipulation and bought Twitter stock at an artificially low price,” according to the lawsuit. It also says that the dip in Tesla’s stock has hampered Musk’s ability to complete the deal.
According to the lawsuit, Musk’s tweets about Twitter – specifically, charges that the company had too many spam bots and the subsequent decision to put the takeover “temporarily on hold” – were likewise an attempt to lower the stock price.
According the report, Musk’s goal could have been to avoid a margin call:
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 timing of Musk’s statements about his stake in the company has already sparked an investigation by the Securities and Exchange Commission. “The SEC requires any investor who buys a stake exceeding 5% in a company to disclose their holdings within 10 days of crossing the threshold,” said Yahoo/Bloomberg.