In this illustration photo taken on July 18, 2022, Elon Musk’s Twitter page is displayed on the screen of a smartphone with Twitter logos in the background in Los Angeles.
Billionaire Elon Musk’s repeated reversals on his plan to buy Twitter for $44 billion weren’t merely the whims of a mercurial mogul — but represented a “fraudulent” effort to secure a better deal, a federal class action lawsuit alleges.
In a lawsuit filed on Monday, Twitter investor Giuseppe Pampena alleges that Musk’s fulminations about the social media giant’s “spam bot” problem were a red herring from the start.
“Before agreeing to buy Twitter for $44 billion, Musk, one of the world’s richest individuals valued at $276 billion according to the Bloomberg Billionaires Index, and a sophisticated businessman with a phalanx of lawyers and investment bankers, specifically agreed to waive detailed due diligence as a condition of the Merger,” Pampena’s lawsuit notes, emphasizing the disavowal in original. “At the time, Musk was well aware that Twitter had a certain amount of ‘fake accounts’ and accounts controlled by ‘bots’ and that Twitter had in fact settled a lawsuit based on the fake accounts for millions of dollars.”
As the complaint notes, that litigation ended in a princely settlement of $809.5 million.
“Musk had tweeted about that issue at Twitter several times in the past, prior to making his offer to acquire Twitter with full knowledge of the bots,” the lawsuit states. “Indeed, on April 13, 2022, when he sent a letter to Twitter’s Board offering to buy Twitter, he later tweeted that ‘If our Twitter bid succeeds, we will defeat the spam bots or die trying!'”
The investor says that Musk leaned on the “spam bot” excuse to mitigate what the lawsuit describes as a “unique and multibillion-dollar problem”: his pledge of Tesla stock as collateral for a $12.5 billion loan to finance the buyout, causing the company’s shares to plummet by more than 37 percent.
“Because Tesla’s stock was worth much less than when Musk agreed to buy Twitter, Musk was at risk of a margin call or a requirement to put up more cash,” the complaint states. “Musk quickly acted to attempt to mitigate these personal risks to himself by engaging in unlawful conduct that moved the price of Twitter’s stock down.”
According to the lawsuit, “Musk’s market manipulation worked,” by driving down Twitter’s valuation by $8 billion.
Shortly before trial in Delaware Court of Chancery, Musk offered to purchase Twitter at the original $54.20 per share price if the company agreed to drop the lawsuit. Twitter had originally sued for specific performance of the contract with Musk, which could have ended in a court-ordered consummation of the merger. The case is currently stayed pending completion of the deal.
“Forced to face the lack of merit of his baseless positions contending that Twitter had breached multiple provisions of the Merger Agreement and that there had allegedly been a [material adverse effect], Musk essentially acknowledged that he had been bluffing all along,” the complaint states.
Twitter’s stock spiked by more than 22 percent the following day.
“As a result of Musk’s wrongful acts and false statements, and the precipitous increase in the market value of Twitter’s securities after the truth was revealed, plaintiff and other class members have suffered significant losses and damages,” the lawsuit says.
The lawsuit claims that Musk violated Section 10(b) of The Exchange Act and Rule 10b-5. Pampena is represented by attorney Mark C. Molumphy from the firm Cotchett, Pitre & McCarthy, LLP.
Read the complaint here.
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