Twitter just hit a $124 million bump in the road to its hotly anticipated initial public offering.
The startup was sued by two financial firms that claim Twitter used them to arrange a private sale of its shares to inflate its market value without any intention of closing the deal.
Precedo Capital Group and Continental Advisors accused Twitter of using the aborted share sale to set a higher $19 a share price tag ahead of the IPO.
The firms claim Twitter never intended to complete the private offering and should pay for lost fees and damage to their business reputations. The suit seeks $24 million in compensatory damages and $100 million in punitive damages.
“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,” according to the complaint filed Wednesday in Manhattan federal court.
Last week, Twitter set the price range for its IPO at between $17 and $20, valuing the company at around $11 billion.
A Twitter spokesman denied the allegations and said the company had no relationship with the firms.
“We’ve never had a relationship with these plaintiffs. Their claim is completely without merit,” Jim Prosser said in an e-mailed statement.
The suit makes it clear that the firms never dealt directly with Twitter. Instead, they were brought into the deal by a third firm, GSV Asset Management, which they said was dealing directly with Twitter and its law firm Wilson Sonsini.
GSV and Twitter both use Wilson Sonsini, according to the complaint.
The plan was for GSV, which currently owns about 0.4 percent of Twitter’s stock in a different fund, to manage the Twitter-only fund.
The firms were in charge of finding investors for it, with Precedo focusing on private investors in the US and Continental reaching out to on European and Asian institutional investors, according to the suit.
But after months of pitching the deal to prospective investors, including a road show in September 2012, the share sale was canceled.
GSV said Twitter wanted to pull out because a Merrill Lynch broker in New York had been reaching out to clients offering them a guaranteed spot in the Twitter IPO, according to Andreea Porcelli, managing partner with Continental Advisors.
“It made no sense and I have been in this business for 20 years,” Porcelli told The Post.
The suit could shed light on what Twitter thought of its stock just last year. Precedo, which was first approached in March, was initially instructed to price the stock at $15.50, according to the complaint.
After a few months, “Twitter authorized GSV Assets to raise the price to $16.50 a share,” the suit claims. When Continental joined the effort, the price was bumped to $19 a share.
According to the suit, Precedo’s Timothy Moran asked GSV’s Matt Hanson about the price increase and was told, “Twitter is controlling the secondary market because they do not want another Facebook,” referring to the social-networking site’s botched IPO.