Hindenburg Research, the New York–based investment firm known for sending tremors through the stock market with its short positions and well-researched positions, had been on Musk’s side for months as the Tesla CEO attempted to renegotiate the price for the Twitter takeover deal he signed off on in April. In May, the firm shorted Twitter stock and warned that Musk had “all the cards” needed to get a better price for the company.

Musk seems to have finally lost Hindenburg on Friday, announcing that he intended to terminate the deal owing to concerns over the number of spam or bot accounts on the social media platform. Hindenburg has dramatically changed its tune, announcing on Wednesday that it had taken a “long position” in Twitter shares.

It doesn’t end there. Hindenburg is now cautioning that Twitter’s lawsuit over Musk backing out of the deal creates a “credible threat to Musk’s empire.”

Here’s what concerns Hindenburg, and why Musk might want to pay attention.

Hindenburg goes long

While Hindenburg did not disclose the size of its new position on Twitter, it said that it is “significant,” indicating that it expects Twitter’s stock to increase in value over the long term, and that the firm is bullish on Twitter’s chances to come out on top of the eventual ordeal of a court battle or settlement with Musk.

Twitter’s stock has certainly seen better days, having fallen nearly 19% since Musk disclosed his offer to buy the company on April 14. 

In May, when Musk threatened to put the Twitter deal “temporarily on hold” as he investigated the company’s claims that bots made up less than 5% of the platform’s accounts, Hindenburg wrote that it was optimistic about Musk’s chances, and believed he would be able to get a better deal.

“We think you get this done. Just at a more reasonable price,” Hindenburg tweeted at Musk at the time.

But now that Musk has officially announced his intention to terminate the deal, Twitter does not seem prepared to renegotiate, and is preparing to make Musk pay the original price.

“The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement,” Bret Taylor, chairman of Twitter’s board, wrote on Friday.

And Hindenburg is now decidedly less optimistic about Musk’s chances.

“Musk has squandered much of his leverage, largely through misadvised and compulsive tweets,” Hindenburg founder Nate Anderson told the Financial Times on Wednesday. “Twitter has a strong case.”

For the past several months, Musk has released a relentless onslaught of tweets directed at Twitter and its board members that the company is using to build a compelling case against him.

Yesterday, Twitter’s lawyers officially submitted a lawsuit against Musk with the Delaware Court of Chancery, filing a 62-page complaint outlining the company’s argument. The complaint cites 13 different tweets it plans to use for the case, in addition to evidence from interviews, public comments, emails, and text messages.

Twitter declined Fortune’s request for comment.

The short-selling giant killer

Many legal experts agree that Twitter appears to have the upper hand over Musk at the moment, and based on the strength of the recently filed complaint, Hindenburg now sees Musk’s vast business empire under serious threat.

Musk should take that seriously.

Hindenburg’s opinions and positions have a history of being market-moving. As Fortune’s Bernhard Warner reported in December 2020, Hindenburg is one of the most prominent in a new breed of “activist” short-selling firms, along with Viceroy and Muddy Waters, that have become “sheriffs” in the modern stock market’s Wild West. 

One of Hindenburg’s biggest scalps was in 2020, when the firm exposed allegedly fraudulent activity at electric vehicle manufacturer Nikola. A Hindenburg report identified a number of misleading public statements and promotional materials from the company that misrepresented its battery development initiatives. The report sent Nikola’s stock price plummeting from a high of $65 per share in June 2020 to $5 currently, and prompted a criminal investigation that culminated in the indictment of CEO Trevor Milton by federal prosecutors in Manhattan this past July. 

For Hindenburg and founder Anderson, it was the highlight of a great run in 2020, when it registered five of the top 10 short calls of 2020, according to research firm Breakout Point. Last year, Hindenburg targeted another EV manufacturer, Lordstown, accusing the company of faking 100,000 orders of electric trucks. Since the report was released in March 2021, Lordstown’s stock has dropped 84%.

Hindenburg did not elaborate on how Musk’s business empire would collapse if Twitter comes out on top, nor did it indicate it is planning to short any of Musk’s other ventures, but Twitter appears to be pressing a strong case.

In Twitter’s official complaint submitted to the Delaware court, the company’s lawyers emphasized that “swift remedial action” from Musk was “warranted,” meaning that even if Musk does not pay the sum agreed when the deal was first struck, any Twitter victory will surely be an extremely expensive proposition for him, and could create potentially lasting damage to him and his companies.

“Our view is there is no winner in the Twitter and Musk saga,” Daniel Ives, managing director at research firm Wedbush, recently wrote, calling the deal a “black eye” for Musk and an “overhang for Tesla’s stock since April.”

Ives described the deal as a “very frustrating situation for all stakeholders.”