Musk, Twitter Face Shareholder Class Action Lawsuit Over Purchase Deal

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Elon Musk/Twitter Shareholder Lawsuit Overview: 

• Who: A shareholder is suing both Twitter Inc. and Elon Musk over Musk’s purchase deal of the social media company. 
• Why: The lawsuit claims Twitter shareholders were harmed by Musk’s failure to disclose his stake in Twitter in a timely manner and many of his tweets, and accuses Twitter of “unjust enrichment.” 
• Where: The lawsuit was filed in federal court in northern California.

Twitter and Elon Musk have both been slapped with a potential class action lawsuit over their handling of Musk’s deal to buy the social media company.

In a lawsuit filed in northern California federal court May 25, lead plaintiff William Heresniak claims on behalf of himself and other Twitter shareholders that actions taken by Musk and the social media company during the purchase deal unjustly harmed the value of their stock.

Heresniak’s lawsuit notes Musk’s failure to disclose to the Securities and Exchange Commission (SEC) in a timely manner his 9+% stake in Twitter, that he had been invited to join Twitter’s board of directors, and that he intended to make an offer to acquire the social media company, which were previously reported by Top Class Actions in April and which the class action claims benefitted Musk by about $156 million.

The allegations made in the lawsuit go back to April 25, 2022 — the date Twitter announced its deal to sell itself to Musk for $54.20 per share, or about $44 billion, something conditioned on both the approval of Twitter shareholders at a meeting to be held this summer and on the closing of the buyout by Oct. 24, as well as on approval from federal regulators.

The lawsuit states Musk negotiated the buyout without carrying out any due diligence, and in fact agreed to waive detailed due diligence as part of the deal.

Soon after the deal was announced, though, Musk found himself in a bit of a pickle, the lawsuit alleges: He had pledged his Tesla stock as collateral for a $12.5 billion loan to finance the Twitter buyout, but Tesla’s stock had dropped more than 37% from the time the deal was first publicly reported to the day Heresniak’s lawsuit was filed, putting Musk at risk of a margin call or requirement to put up more funds.

“Musk had a unique and multi-billion-dollar problem,” the class action states, going on to allege that Musk’s behavior in the midst of Tesla’s stock price drop has been to renegotiate the Twitter buyout price.

“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,” the lawsuit claims. “Musk proceeded to make statements, send tweets, and engage in conduct designed to create doubt about the deal and drive Twitter’s stock down substantially in order to create leverage that Musk hoped to use to either back out of the purchase or re-negotiate the buyout price by as much as 25% which, if accomplished, would result in an $11 billion reduction in the Buyout consideration.”

The lawsuit is seeking class action certification, a jury trial and punitive damages for all plaintiffs over Musk’s alleged actions.

What do you think of the Twitter shareholder lawsuit? Let us know in the comments below.

The plaintiff is represented by Anne Marie Murphy of Cotchett, Pitre and McCarthy LLP.

The Twitter Shareholder Class Action Lawsuit is William Heresniak, et al. v. Elon R. Musk, et al., Case No. 3:22-cv-03074, in the U.S. District Court for the Northern District of California.

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