| NEW YORK
NEW YORK Oct 30 Twitter Inc was
sued for $124 million on Wednesday by two companies that said
the social media darling defrauded it into pushing forward with
a doomed private sale of its shares to stoke investor interest
for its initial public offering.
In a lawsuit filed in U.S. District Court in Manhattan,
Precedo Capital Group Inc and Continental Advisors SA accused
Twitter of using the aborted sale as a means to give the
money-losing company a $10 billion market valuation and higher
"Twitter never intended to complete the offering on behalf
of Twitter stockholders, in the private market, thereby causing
substantial damages to the plaintiffs in the loss of
commissions, fees and expenses, as well as through their
business reputation," the lawsuit said.
The financial firms seek $24.2 million of compensatory
damages, $100 million of punitive damages, and other remedies.
Jim Prosser, a spokesman for Twitter, did not immediately
respond to a request for comment.
The lawsuit comes as anticipation builds for Twitter's IPO,
widely considered the most highly awaited since Facebook Inc
went public in May 2012.
Last week, the San Francisco-based company said it would
offer its shares at between $17 and $20 each, valuing the
company at up to about $11 billion.
Twitter was holding its first large investor lunch in New
York on Wednesday. Institutional investors who met with Twitter
this week say they are optimistic about its upcoming IPO and see
it as a more conservative offering than Facebook's splashy IPO.
Like many Silicon Valley start-up companies, Twitter has
paid employees and contractors using private stock.
According to the lawsuit, it was worried about repeating
some problems afflicting Facebook's $16 billion offering.
In particular, the lawsuit said Twitter sought to avoid the
potential for excess supply of company shares by controlling the
buyers and sellers of those shares in the private market.
Precedo, an Arizona-based broker dealer, and Continental, a
Luxembourg financial adviser, said they were contacted by GSV
Asset Management, an approved buyer of Twitter stock, about
marketing a fund that could only purchase Twitter shares.
GSV allegedly had negotiated an agreement with Twitter in
which it would arrange the sale of up to $278 million of shares
owned by employees and others, in blocks of $50 million.
Precedo and Continental said they lined up commitments for
the first $50 million block, and set up road shows in the United
States, Europe and Asia where GSV managing partner Matthew
Hanson disclosed material non-public information about Twitter.
But they said Twitter eventually blocked the sale after
learning that Precedo and Continental had attracted investors
willing to pay $19 a share, considerably above the $17 or less
offered in other private market transactions.
The firms now say Twitter "never intended" to allow the
private stock sales to go forward.
"Twitter's intention was to induce Precedo Capital and
Continental Advisors to create an artificial private market
wherein Twitter could maintain that a private market existed at
or about $19 per share for the Twitter stock," they said.
The case is Precedo Capital Group Inc. v. Twitter Inc, U.S.
District Court, Southern District of New York, No. 13-07678.