Twitter sued for $124m ahead of IPO over alleged abandoned private share sale

Twitter has been sued for $124 million (£77 million) by two finance companies that allege the social media giant engineered an aborted private sale of shares in 2012 in order to bolster its position in preparation for its imminent initial public offering.

Precedo Capital Group and Continental Advisors claimed in Manhattan federal court this week that Twitter acted fraudulently and used the failed sale of up to $278 million (£173 million) worth of shares, to set the $10 billion (£6.2 billion) plus valuation for the company ahead of the IPO.

"Twitter never intended to complete the private sale of Twitter stock," the firms said in their complaint. "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 (£12) per share for the Twitter stock."

Precedo Capital and Continental Advisors claim they had an agreement with GSV Asset Management a California-based Twitter shareholder, with the approval of the firm, to market a limited partnership set up to buy Twitter shares from employees, contractors and early investors.

The two firms allege to have received over $50 million (£30 million) in commitments and indications of interest, but were blocked from finalising the transactions after GSV postponed closings twice, before the company cancelled the offering completely. They claim that it was Twitter pulling the strings.

"This private market transaction, which upon information and belief was interrupted by Twitter, permitted Twitter to establish a sales floor for a large amount of Twitter stock among multiple buyers, as well as a $10 billion market value for Twitter, in order to use this information in negotiations with underwriters and investment banks to establish a market value of Twitter stock for filing their IPO," Precedo Capital and Continental Advisors claimed in the filing.

Responding to the allegations, Jim Prosser, a Twitter spokesperson said: "We've never had a relationship with these plaintiffs. Their claim is completely without merit."