Twitter Shareholder Sues Elon Musk Over Alleged Market Manipulation

On May 25, Twitter shareholder William Heresniak initiated a class-action lawsuit naming co-defendants Elon Musk and Twitter. Heresniak’s counsel filed the case in U.S. District Court in the Northern District of California (Heresniak v. Musk, N.D. Cal., No. 22-cv-3074). Among other things, the case alleges that Musk did the following:

• Repeatedly failed to disclose required information
• Made a number of false statements
• Acted with intent to purposefully manipulate Twitter’s stock price for his own benefit

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It’s all laid out in a 22-point summary and four substantive allegations.

This latest filing is just one of several legal challenges to Musk’s proposed purchase of Twitter, which also faces regulatory scrutiny and concern among advertisers over how Twitter stock might be affected by the entrepreneur’s notoriously erratic tweeting and behavior. Anyone who’s been observing Musk’s actions regarding Twitter since around March 2022 is already aware of the several times Musk has run afoul of Securities and Exchange Commission (SEC) required filings.

The current case argues that Musk’s foot-dragging in filing the SEC Form 13G specifically benefitted him to the tune of approximately $156 million, because those delays allowed him to continue purchasing Twitter stock (in late March and early April) at an artificially low price. The suit also asserts that Musk managed to manipulate the Twitter stock price, resulting in roughly $8 billion in lost valuation since his buyout offer was accepted on April 25.

One big issue is the fact that Musk pledged to use Tesla stock as collateral to obtain the required financing for the $44 billion Twitter purchase ($54.20/share). However, as stated in the lawsuit, “because Tesla’s stock is worth much less now than when Musk agreed to buy Twitter, Musk is at risk of a margin call or a requirement to put up more cash. 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.”

As both Twitter’s and Tesla’s fortunes continue to fluctuate, what the next episode in the unfolding drama will be remains anyone’s guess. At least one thing seems clear: whatever happens, Elon Musk will be at the center of it.