Precedo Capital Group and Continental Advisors SA are suing Twitter for secondary market fraud. The securities lawsuit comes right before the social networking company’s IPO, which is slated for this week. The investment advisor plaintiffs claim that Twitter promised them up to $289 million in shares through another financial firm to try and raise its secondary market valuation and test the market. The third firm, GSV Capital, is not a defendant.
Precedo and Continental claim that GSV’s co-founder and CIO Matthew Hanson reached out to them last year about an arrangement involving his firm giving them shares to market to other accredited investors. The plaintiffs say that Twitter and its legal representation, Wilson Sonsini Goodrich & Rosati, approved the deal. Wanting the healthy commission they expected they’d receive, the investment advisers marketed private Twitter shares to investors abroad and in the US.
Continental and Precedo say they took hundreds of millions of investor orders and collected over $4 million that was placed in an escrow account. The customers wanted exposure to pre-IPO twitter stock.
However, contend the two firms, before payments were accepted Twitter told GSV to cancel the offering, which caused Precedo and Continental to have to pay millions of dollars in lost fees while their reputation suffered. Even though GSV is the one that shut down the offering, the plaintiffs believe that Twitter was the one making the calls and that GSV didn’t have the authority to offer the shares for repurchase. They also claim that Twitter never planned to sell the shares but actually just wanted to get a sense of the demand for the stock so it could set itself up with a high secondary market valuation. Now, Continental and Precedo want $24.2 million in expenses and lost fees.
Twitter says that the lawsuit is without merit and that it never had a relationship with the two investment advisors.
Two Financial Advisers Accuse Twitter of Secondary Market Fraud, NY Times, October 30, 2013
Two Investment Firms Almost Sure They Remember Being Hired to Sell Twitter Stock, Bloomberg, October 30, 2013
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Radio Host Dave Ramsey and Financial Advisers Get Into Twitter Fight, Stockbroker Fraud Blog, June 14, 2013
Texas Securities Roundup: $10M Ponzi Scheme, Foreign Note Sale Fraud, Promissory Note Scam, and Money Laundering Lead to Indictments, Criminal Sentences, Stockbroker Fraud Blog, May 21, 2013
Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013
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