Precedo Capital Group and Continental Advisors accused Twitter of using the aborted private sale to command a higher share price and boost the money-losing company's market valuation.
Twitter, like most tech startups, is paying employees and contractors in stock. The lawsuit states that Twitter sought to avoid an excess of company shares, as happened with Facebook, by controlling those shares in the private market.
Arizona-based broker dealer Precedo and Luxembourg financial adviser Continental say in the suit that they were contacted by GSV Asset Management, an approved buyer of Twitter stock, about marketing a fund that could only purchase those shares.
The two firms say GSV allegedly had an agreement with Twitter to arrange the sale of $278 million worth of stock owned by employees and contractors in $50 million blocks. They also say they relied on GSV's claims that it had authorization from Twitter to sell the private stock.
According to the complaint, Matthew Hanson of GSV Asset Management told Precedo Capital that “Twitter is controlling the secondary market because they don’t want another Facebook.”
The two companies are targeting Twitter, and not GSV, because Twitter provided GSV with non-public information for the purpose of pushing the fund.
Precedo and Continental say they conducted 47 road shows around the world, along with GSV managing partner Matthew Hanson, who disclosed material non-public information about Twitter, provided by Twitter.
The firms lined up commitments for the first $50 million block.
But the companies allege that Twitter blocked the sale once they learned private investors were willing to pay $19 per share, well above the $17 and less offered in other private transactions.
Precedo and Continental claim Twitter never intended to go through with the sale.
"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 in their complaint.
The two firms have timed their suit just days before Twitter's IPO. They are seeking $24.2 million of compensatory damages and $100 million of punitive damages.