Two financial firms filed a lawsuit in Manhattan federal court today alleging that Twitter had them organize a private sale of its shares and then cancelled the sale—all for the purpose of ratcheting up investor interest prior to its IPO. The complaint accuses Twitter of "using the aborted sale as a way to give the money-losing company a $10 billion market valuation and higher IPO price," says Reuters.

Not exactly the kind of press you want in the middle of your road show, especially when Twitter was angling for the "anti-Facebook" IPO.

In fact, the lawsuit, which was filed by Precedo Capital Group Inc. and Continental Advisors SA, even mentions that Twitter was worried about repeating the issues that Facebook faced. The company was wanted to avoid the possibility of an excess supply of Twitter stock by controlling how shares were bought and sold in the private market.

Reuters reports:

Precedo, an Arizona-based broker dealer, and Continental, a Luxembourg financial adviser, said they were contacted by GSV Asset Management, an approved buyer of Twitter stock, about marketing a fund that could only purchase Twitter shares.

GSV allegedly had negotiated an agreement with Twitter in which it would arrange the sale of up to $278 million of shares owned by employees and others, in blocks of $50 million.

Precedo and Continental said they lined up commitments for the first $50 million block and set up road shows in the United States, Europe and Asia where GSV managing partner Matthew Hanson disclosed material non-public information about Twitter.

After Precedo and Continental found investors willing to pay $19 a share, which was markedly higher than the $17 or less offered in other secondary markets, Twitter blocked the sale. But the complaint alleges that Twitter "never intended" to let the private sale go forward.

"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 a statement to Reuters, Twitter said it had never had a relationship with Precedo or Continental Advisors and called the claim "completely without merit."

The lawsuit asks for $24.2 million in compensatory damages and $100 million for punitive damages "and other remedies." So much for the low-key approach.

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