Twitter investors sue Elon Musk for stock 'manipulation' during takeover bid
The lawsuit comes as Tesla CEO abandons plan to use a margin loan tied to his Tesla stake to partly finance Twitter acquisition
Twitter investors have sued Elon Musk for failing to disclose his stake in the firm and behaving unlawfully in his $44 billion (£34.9 billion) takeover bid for the microblogging network.
Investor William Heresniak filed the proposed class action complaint in the US District Court for the Northern District of California on Wednesday, claiming to be acting "on behalf of himself and all others similarly situated."
Musk is accused of "wrongful conduct" in the case, with investors claiming that his false assertions and market manipulation have created 'chaos' within Twitter's San Francisco headquarters.
According to the complaint, Musk saved $156 million by failing to reveal that he had bought more than 5% of Twitter before March 14.
The investors said Musk continued to acquire shares after March 14 and eventually announced in early April that he controlled 9.2% of the firm in early April.
The US Securities and Exchange Commission (SEC) mandates any investor who acquires more than 5% of a company's stock to report their holdings within 10 days of doing so.
The case also names Twitter as a defendant, claiming that the company had an obligation to probe Musk, although investors said that they are not seeking damages from the company.
They went on to say that the recent decline in Tesla's price has placed Musk's ability to fund his Twitter purchase in serious jeopardy, since he has pledged his shares as collateral to secure the loans he needs to buy the firm.
According to investors, many of Musk's tweets in recent days have been "misleading". The complaint included a tweet in which Mr Musk stated his offer for the social media company had been put on hold due to his concerns about the number of bogus accounts on the network.
The tweet on May 13 constituted an attempt to "manipulate the market for Twitter shares" as Musk was aware about the fake accounts, according to the complaint.
Frank Bottini, one of the attorneys representing the Twitter investors, told the BBC that the case has been launched as Musk "continues to disparage the company he wants to buy for $44 billion in an effort to renegotiate the purchase price."
Aome analysts suspect that Musk is considering lowering his takeover bid or walking away from the transaction altogether.
Last month, Musk attempted to acquire the firm for $44 billion, but placed the transaction on hold until the company provided more details about how many of its accounts are spambots.
Since then, he's tweeted multiple times that he is worried about the number of fake accounts, or bots, on Twitter and that if more than 5% of accounts are shown to be fake, he should pay less.
Musk abandons plans to fund Twitter purchase through Tesla
The lawsuit against Musk comes as the Tesla CEO said he was abandoning plans to use a margin loan tied to his Tesla stake to partly finance his acquisition of Twitter. Instead, he will need to find extra money from his personal equity.
On Wednesday, Musk offered an extra $6.25 billion in equity financing to fund his bid for Twitter, bringing the total equity component of the transaction to $33.5 billion.
In a filing with the SEC, Musk revealed the expiry of a series of margin loans against Tesla shares, which were part of his initial funding plan to purchase Twitter.
Musk's initial proposal to buy Twitter included $21 billion in personal equity and $25.5 billion in loans. A total of $12.5 billion in loans were secured by Musk's Tesla stock.
With a previous round of stock financing, Musk slashed that number in half, and he has now reworked the deal to eliminate them completely.