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Twitter shareholders sue company, Elon Musk over takeover bid

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Yahoo Finance legal reporter Alexis Keenan breaks down the new lawsuit levied against Elon Musk and Twitter following Musk's takeover bid of the social media platform.

Video transcript

[MUSIC PLAYING]

RACHELLE AKUFFO: Welcome back, everyone. Elon Musk's bid to buy Twitter is under added legal pressure today. A Twitter shareholder in California filed a proposed class action lawsuit against Musk and Twitter. And the SEC's probe into Musk's disclosure has also been revealed.

Yahoo Finance's Alexis Keenan is here with us. Alexis, what do we need to know?

ALEXIS KEENAN: Hi, Rachelle. Yes, so this is an action that is brought in California Federal Court. And it's brought by a Twitter shareholder seeking to be a class action on behalf of similarly-situated Twitter shareholders, he says.

And what the allegations here are is that it's a violation of California's Corporate Code. The lawsuit says that Musk manipulated the Twitter stock price, that is, by making false and misleading statements after he acquired that 9% share in Twitter's ownership and also that $44 billion offer that he made. The lawsuit says that Musk raised doubts about the transaction after the fact, namely in tweeting about that he has some skepticism over Twitter users and that there are too many bots on the platforms.

The lawsuit says that, no, that's not a condition of the contract that he signed to buy the company. But they said that he intentionally drove down Twitter's stock price by making that and other claims after the fact. And they said he did that to protect his Tesla shares. Remember that Musk had originally pledged some of his Tesla shares in a margin loan that he has sent scrapped. But that is one of the allegations there.

So if you look at this lawsuit, there are three counts against Musk alone. But there are also two counts against Musk and Twitter. As for Musk, they say he illegally induced shareholders to buy and sell Twitter shares, that he unjustly enriched himself, and also they make this vague insider trading accusation against Musk, saying that he bought the shares on non-public information.

As for Twitter, they want some disclosures and claims made by the court to find that Musk's transaction is not based on those claims that he's been making on Twitter.

DAVE BRIGGS: He has driven that stock down pretty considerably. Not sure if that was his intention. But at least in recent days, it does appear he's moving towards making this deal, where the whole world thought he was getting out of it. Where does this lawsuit likely end up? And how big a threat is it?

ALEXIS KEENAN: Yeah, so this lawsuit makes some interesting claims, although because it's looking at accusations after Musk acquired his shares and after he already made his offer of $44 billion and had that offer accepted, it's a little bit different from your typical market manipulation claim. Usually that's like a pump-and-dump scheme. Usually that means that the manipulator is going to buy or sell based on those statements that they're making. So it's a novel case.

On the other hand, though, you had today, the SEC saying and affirming by putting a letter that they have put up on the SEC website-- there was a lot of speculation about whether the SEC was looking into some of these Twitter claims by Musk and statements that he's been making. But it turns out that, yes, they want to know more about this transaction.

And that's the issue for Musk that might be a little more high-risk, not in the dollar sense, but in the sense that it could maybe go somewhere. Maybe it has more legs. The SEC seems to have a claim there, because Musk did file his disclosure that he had acquired his Twitter shares very late.

DAVE BRIGGS: The SEC is shown no appetite to want to mess with Elon though, have they? I mean, they've had opportunities.

ALEXIS KEENAN: No.

DAVE BRIGGS: It's been a target-rich environment.

ALEXIS KEENAN: They're sprinkling in a little appetite today, because they did post this letter that they sent to Musk saying, please give us an explanation as to, one, why you filed late and, two, why you filed originally as a passive investor and not an active investor. They want to see him prove that up on paper.

DAVE BRIGGS: That seems like it has legs. And we're not even done with Elon. We got more Elon for you later in the show, because we're never done with the Elon. Alexis, thank you. Nice to see you.

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