Cotchett Pitre & McCarthy and Bottini & Bottini filed suit today on behalf of William Heresniak (a twitter shareholder) against Elon Musk (Tesla’s owner) before in the U.S. District Court for the Northern District of California.
The reason why the lawsuit has been filled is that Musk has been allegedly manipulating the market for Twitter stock.
After first agreeing to buy Twitter for $54.20 per share on April 25, 2022, Musk began denigrating Twitter and then trying to renegotiate the deal. Musk’s false statements and tweets have resulted in an $8 Bn loss market capitalization for Twitter shareholders, who are forced to go along for the ride and games, according to the suit.
The lawsuit has been meant as a class action, therefore any Twitter shareholder can add his/herself to the plaintiff side of this procedure.
The case is Heresniak v. Musk, Case No. 3:22-cv-03074 (USDC – Northern District of California), informs the communication published by Cotchett Pitre & McCarthy and Bottini & Bottini.
“Musk’s wrongful conduct has not only substantially harmed Twitter’s shareholders by causing Twitter’s stock to crater by approximately 25%, but it has also substantially harmed Twitter’s employees, ” Frank Bottini, Partner at Bottini & Bottini underscores in the complaint.
“Musk’s disregard for securities laws demonstrates how billionaires can skirt the law and the tax code to build their wealth at the expense of the average American,” Anne Marie Murphy, Partner at Cotchett, Pitre & McCarthy explains in the complaint.
This is just one o the class actions that Musk might face by his behavior and tweets around Twitter’s purchase agreement.
Arguments of the lawsuit filled
The lawsuit alleges that Musk came up with a plan to extricate himself from Twitter purchase at $54.20 per title dilema by making false public statements about the social network and the buyout to lower the price of Twitter shares. Musk made a series of these false statements that created leverage for himself to renegotiate or back out of the buyout by purposely casting doubt on whether the Twitter deal would go forward.
1.- No right to unilaterally cancell or put on hold the purchase agreement
As alleged in the complaint, on May 13, 2022, just before the market opened, Musk tweeted that the buyout was “temporarily on hold” to manipulate the market. The buyout was not on hold and there is no provision in the contract that allows Musk to unilaterally put the deal on hold.
Musk then stated in a series of tweets that the buyout would be contingent on the number of fake accounts on Twitter. His tweets escalated and Musk later tweeted that the deal “cannot go forward” unless Musk was satisfied. Musk had no right to cancel the buyout or conduct an investigation into the number of fake accounts because Musk waived due diligence in the buyout contract. Musk was also well aware that Twitter had a certain amount of “fake accounts” and accounts controlled by “bots.”
2.- Musk manipulated the market against California Law
According to the lawsuit, Musk’s statements and conduct violate the California Corporations Code, which prohibits market manipulation. Specifically, the lawsuit alleges that Musk purposefully manipulated Twitter securities to lower their value. The lawsuit alleges that Musk’s sudden interest in fake accounts is a pretext to back out of the buyout or further lower the $54.20 buyout price.
3.- Fake accounts and bots on Twitter are no surprise for anybody an even least surprising for Elon Musk
The existence of fake accounts, likely in high numbers, is not surprising. Twitter paid over $800 million to settle a lawsuit that alleged that Twitter had misrepresented facts about its user and growth rate. Twitter has also publicly disclosed there are fake and duplicate accounts. Musk has pointed out that the fake accounts were one of the reasons he wanted to buy Twitter.
4.- Musk tweets are directly responsible for the loss of value of Twitter titles
Twitter’s shares have declined significantly as a direct result of Musk’s tweets and his invitation for the SEC to investigate Twitter. The lawsuit seeks remediation for the shareholders who suffered the harm done.
Elon Musk damaged the value of the goods that guaranteed that he could pay the agreed price
Elon Musk’s behavior has not only harmed Twitter shareholders due to the fall in value of the social network’s shares. The billionaire has reduced the guarantees given to said shareholders that he could pay the agreed price per title.
Musk pledged his Tesla shares as collateral for $12.5 billion in loans to finance part of the purchase price. Musk also initially sold roughly $8.5 billion of Tesla shares to raise funds for the buyout. But then Tesla shares began a steep decline that did not abate, dropping 37% after the announcement of the buyout, causing Musk to stop selling his shares. Musk is on the hook for billions more to complete this buyout both from his own cash and lenders. Tesla’s policies limit Musk’s ability to pledge his Tesla shares as collateral for personal loans to no more than 25% of the loan value, which threshold was breached as Tesla shares continued to plummet.
Image over the headline.- Angy bird. Image by Tobias Franz through Wikimedia Commons. To watch the original photo and read the terms of the lisense, click here
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