Billionaire Elon Musk has been sued by Twitter Inc (TWTR.N) shareholders who claim he exploited the company’s stock price downward, as the CEO of electric carmaker Tesla Inc (TSLA.O) prepares a $44 billion takeover bid for the social media platform.
According to the investors, Musk saved $156 million by failing to disclose that he had purchased more than 5% of Twitter by March 14. They requested class certification and an undisclosed amount of punitive and compensatory damages.
They also named Twitter as a defendant, claiming the company owed them an investigation into Musk’s behavior, though they are not seeking monetary damages from the company.
As per the lawsuit, filed on Wednesday in San Francisco federal court, the investors claimed Musk continued to buy the stock after that and eventually disclosed in early April that he owned 9.2 percent of the company.
“By delaying his disclosure of his Twitter stake, Musk engaged in market manipulation and bought the Twitter stock at an artificially low price,” the investors, led by Virginia resident William Heresniak, claimed.
Requests for comment were not immediately returned by Musk or his lawyer. Twitter did not respond.
The recent drop in Tesla’s stock has placed Musk’s ability to finance his procurement of Twitter in “major peril,” according to the investors because he has pledged his shares as collateral to secure the loans he needs to buy the company.
Tesla’s stock was trading around $713 per share on Thursday afternoon, down from over $1,000 in early April.
According to the Wall Street Journal, the timing of Musk’s disclosure of his stake has already prompted an investigation by the US Securities and Exchange Commission (SEC).
The SEC requires any investor who purchases more than 5% of a company’s stock to disclose their holdings within 10 days of crossing the threshold.
The investors also claimed that Musk’s public criticism of the company, such as a May 13 tweet declaring that the buyout was “temporarily on hold” until Twitter proved that spambots taken into account for less than 5% of its users, amounted to an attempt to throw the share price even lower.
Musk made a pledge an additional $6.25 billion in equity financing to help finance his bid for Twitter on Wednesday, indicating that he is still working to close the deal.
Musk was sued earlier this month in Delaware Chancery Court by a Florida pension fund, which sought to halt the transaction on the grounds that some other large Twitter shareholders were supporting the buyout, which is a violation of Delaware law. The lawsuit filed by Heresniak does not seek to halt the takeover.