Twitter shareholders filed a lawsuit against the company and Musk, a potential acquirer, as the latter two were still dealing with a chaotic acquisition process, causing Twitter's share price to fluctuate sharply.
Musk disclosed his stake in Twitter on April 4 and offered to buy the company for $44 billion, or $54.20 a share, ten days later. He has sold and mortgaged most of his Tesla, Inc. shares as collateral for the loan to fund the deal.
Twitter shares have fallen more than 12% since Musk's bid, while Tesla, Inc. 's shares have fallen about 28% during the technology sell-off. Tesla, Inc. 's share price has fallen about 40 per cent since Mr Musk first disclosed his stake in Twitter.
In a class action filed on Wednesday, Twitter shareholders claimed that Mr Musk had violated California corporate law in several ways and was therefore involved in market manipulation.
Shareholders allege that Mr Musk benefited financially by delaying the disclosure of his stake in Twitter and temporarily concealing his plans to become a member of the company's board of directors in early April.
Musk snapped up Twitter shares through private conversations with board members and executives, including an old friend of Musk and a former Twitter CEO Jack Dorsey, as well as Silver Lake United CEO and Twitter board member Egon Durban, the indictment said. Egon Durban's company invested in SolarCity before Tesla, Inc. bought it.
The proposed class action also argues that Musk violated California law by raising public doubts about whether he would complete the deal after signing the acquisition contract.
Earlier this month, Mr Musk said he would "shelve" his acquisition of Twitter to learn more about fake and spam accounts on the platform.
Shareholders said his complaint about fake accounts was part of a plan to negotiate a better purchase price or terminate the deal:
Mr Musk continues to make statements, tweet and engage in actions designed to cast doubt on the deal and push Twitter's share price down sharply to create chips he wants to use to exit the acquisition or renegotiate a 25 per cent discount. It will reduce the purchase price by $11 billion. "
Edit / emily
