The Twitter-Elon Musk saga continued this week, as the two sides traded barbs in legal filings ahead of a five-day trial scheduled to begin Oct. 17.
Newly released legal documents by lawyers representing Musk in a countersuit against Twitter allege the social media company engaged in a scheme to “defraud investors” by providing false numbers in financial filings with the Securities and Exchange Commission. Musk charges that Twitter’s platform has at least twice the number of bots the company claims in SEC filings and fewer “active daily profitable users” than claimed.
Twitter responded that the billionaire CEO of Tesla and SpaceX is making the wrong assumptions and looking for an excuse to walk away from his $44 billion deal in April to buy the social network.
Both sides are building their cases ahead of a court date in Delaware set to resolve the dispute over whether Musk should proceed with the deal.
The drama began in early April, when Musk revealed an important action on Twitter. After initially agreeing to join Twitter’s board, he reversed course and instead offered to buy the company or sell his holdings.
Twitter was initially against the deal and sought another avenue, but eventually reached an agreement to sell to Musk for about $54.20 per share. But then, as the market tanked and Twitter’s stock price plummeted, Musk began bad-mouthing Twitter in public in an apparent attempt to get out of the deal.
Here’s a summary of the latest developments based on new, and some previously confidential, court filings from both sides:
Numbers ‘far from the truth’
In a legal filing, Musk accused Twitter of including statements in its SEC disclosures that “were far from the truth.” Through his corporate law firm Skadden-Arps, Musk said the social media company is “miscounting the number of fake and spam accounts on its platform” to give investors a rosy picture.
Musk has complained about fraud, spam and bots on Twitter for years.
In a press release announcing his deal to buy Twitter, Musk wrote that “defeating spam bots” was one of his goals and motivations for acquiring the company.
Twitter responded in a separate filing in Delaware court this week that Musk and his team have “spent months trying to invent a spam detection problem and found nothing.”
Ill-defined metrics
Musk’s lawyers also said in their counterclaim that Twitter’s “monetized daily active users,” or mDAU, “are not as tied to revenue as Twitter leads the public to believe.” They claim Twitter doesn’t accurately explain to shareholders or Musk how they derive the key mDAU metric.
In response, Twitter said Musk never raised concerns about mDAU as a reason to end the deal.
Musk’s claims of misleading mDAU statistics “are a newly invented court position,” Twitter’s lawyers wrote. Additionally, Twitter said it “accurately discloses in its SEC filings” how it determines the mDAU metric and its importance to the company.
Supporting files
Musk said, in his counterclaim, that he relied on Twitter’s SEC filings to outline details about the social network’s business and challenges.
What Musk doesn’t say is that he’s been friends with former Twitter CEO Jack Dorsey for years. As CNBC reported in January 2020, the two executives even exchanged ideas on how to improve Twitter.
Musk also has a long-standing business relationship with Silver Lake, a financial firm run in part by Twitter board member Egon Durban. Silver Lake was a big and early backer of SolarCity, where Musk served as chairman, and was said to be one of the firms Musk advised when he said he was considering taking Tesla private for $420 a share and had “secured funding” to do so.
Twitter reiterated in its filings that the company’s “SEC disclosures are accurate” and that the company “has not misrepresented anything.” Twitter said Musk’s claims were “not supported by any facts.”
“Musk sought an emergency deal, failed to exercise due diligence and offered a self-described ‘seller-friendly’ merger agreement that contained no representation about fake or spam accounts or mDAU,” the lawyers tweeted.
‘Quarry’
Musk said Twitter failed his team, failing to deliver requested and necessary information about bots and spam on the platform. The complaint does not mention that Musk has said he may start a competing social media platform.
Twitter’s attorneys alleged that “Musk invents representations that Twitter never made and then attempts to use, selectively, the extensive confidential data that Twitter provided to him to conjure up a violation of those alleged representations.”
The lawyers said Musk “incoherently asserts” that Twitter “violated the merger agreement by obstructing his requests for information.”
Double the bots
Accusing Twitter of having at least twice as many bots on its platform as the company disclosed, Musk’s team relied on “visible accounts on Firehose using Indiana University’s Botometer tool,” the counterclaim said.
Twitter questioned Musk’s methods for analyzing spam and bots, particularly his use of the Botometer tool. The lawyers wrote that the tool “applies different standards to Twitter, which earlier this year Musk himself designated as highly likely to be a bot.”
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