Ahead of IPO, Twitter Gets Sued for Aftermarket Fraud
Twitter Inc. has been slapped with a lawsuit for secondary market fraud a week ahead of its initial public offering by two investment advisors who claim the social media giant used them to gauge pre-debut market interest in its stock.
The plaintiffs, Continental Advisors SA and Precedo Capital Group, say that Twitter and its counsel, Wilson Sonsini Goodrich & Rosati, approved a third party to provide them with $278 million worth of private shares to market to other accredited investors for a commission, according to The New York Times. According to the plaintiffs, more than $4 million was collected from investors and placed in an escrow account before the third party, GSV Capital, abandoned the offering—costing Continental and Procedo $24.2 million in lost fees and reputational damage.
“Twitter intended to support a market price of Twitter stock by using plaintiffs to secure high net worth and institutional investors to determine what the interest was in purchasing Twitter stock,” the plaintiffs said in the suit, according to the Times. “Twitter’s intention was never to sell the stockholders’ shares that it controlled.”
Twitter said in a statement they’ve never even had a relationship with the plaintiffs, who told the Times they’ve been trying to contact Twitter for a year to no avail and thus decided to file a federal suit in Manhattan.
The lawsuit hasn’t clipped Twitter’s wings yet: Company executives are still playing show-and-tell with high-roller investors across the country. Underwriters will start selling “TWTR” stock to institutional investors as early as Nov. 7 for about $17 to $20 per share.