Lawsuit alleges Musk drove Twitter stock down

Elon Musk is being sued by Twitter investors for driving down the social network's share price in an effort to cut the cost of his Us$44-billion takeover.

Musk has illegally attempted to “mitigate personal (financial) risks to himself by engaging in unlawful conduct that moved the price of Twitter's stock down,” according to a lawsuit.

William Heresniak filed the lawsuit in California on behalf of himself and other Twitter shareholders against the Tesla billionaire and the social media company.

The lawsuit claims that Musk is making false statements and engaging in “market manipulation” to negotiate a cut-price deal.

Twitter shares have fallen heavily in recent weeks, despite Musk agreeing to buy the company for US$54.20 a share, after he said he had put the deal on hold and suggested he should get a discount due to the number of fake accounts on the service.

They were on Friday trading below US$40 a share, more than 26 per cent below Musk's offer price, with the company's market value US$14 billion below the offer price.

On Friday it emerged that the U.S. Securities and Exchange Commission had written to Musk asking whether he had properly disclosed his stake and whether he was a “passive” investor as he had originally stated. The letter was dated April 4, before the billionaire launched his takeover bid.

Heresniak wants the lawsuit designated a class action, allowing other Twitter shareholders to join it, and for Musk to compensate shareholders for the declining value of their investment.

It also seeks damages from Musk for failing to disclose his status as a Twitter investor earlier in March.

He only revealed he had bought a 9.2-per-cent stake in the company after the traditional deadline.

“By delaying his disclosure of his stake in Twitter, Musk engaged in market manipulation and bought Twitter stock at an artificially low price,” the lawsuit states.

Musk and Twitter did not comment.

Twitter said it had rejected the resignation of Egon Durban, an ally of Musk, after shareholders voted to oust him.

Durban, who represents private equity giant Silver Lake, will reduce his other board commitments.