SAN FRANCISCO (CN) - A federal judge dismissed the bulk of fraud and contract claims against an asset management company over a fake Twitter private-share sale that two financial firms claim Twitter orchestrated to boost its value for a future IPO.
In their December 2014 lawsuit, Precedo Capital Group Inc. and Continental Advisors SA said one of Twitter's shareholders, GSV Asset Management, approached them with a plan to sell up to $278 million in Twitter stock owned by employees, contractors and others who were paid in restricted shares during the company's early days.
Twitter claimed it was trying to avoid the "pitfalls" that plagued Facebook's initial public offering, when the aftermarket stock price took a hit due to private trading of restricted stock before the IPO.
Continental Advisors and GSV Asset Management embarked on an 18-day international roadshow, giving 47 presentations to high-end investors in eight nations, according to the lawsuit. Precedo Capital allegedly pitched investors and broker-dealers in New York, Chicago, Florida, Virginia and Pennsylvania.
The firms claimed investors offered to buy more than $50 million in stock at $19 per share -- at which point Twitter abruptly pulled the plug. They said Twitter never planned to complete the private sale, and was merely testing the market price for a future offering.
Continental and Precedo also sued Twitter in a separate action in October 2013.
While the firms said they lost $24.2 million in fees and commissions, U.S. District Judge Yvonne Gonzalez Rogers was not convinced that GSV should be held liable for the canceled sale, saying Continental and Precedo assumed the risk that the sale might not occur.
Rogers also nixed their bad faith claims, finding "full knowledge regarding the purported fraud in the inducement would have at most resulted in plaintiffs' refusal to enter into the agreements."
However, Roger found it plausible that GSV and Twitter may have conspired over the fake sale.
"While the conspiracy allegations in the operative complaint are sparse, the general theory-that defendants conspired amongst themselves and with Twitter to obtain plaintiffs' assistance to market an offering with no intention of consummating any deals through plaintiffs-is sufficiently plausible at this early, prediscovery stage of the case," she wrote.
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