Legal documents just released by lawyers representing Musk in a lawsuit against Twitter claim that the social media company has engaged in a scheme to “deceive investors” by providing fake numbers in financial records with the Securities and Exchange Commission. Musk says the Twitter platform has at least twice the number of bots the company claims in SEC filings and fewer “monetizable daily active users” than it claims.
Twitter responded that the billionaire CEO of Tesla and SpaceX is making incorrect assumptions and is looking for an excuse to back out of his April $ 44 billion deal to buy the social network.
Both sides are building their cases ahead of the Delaware court date set to settle the dispute over whether Musk should finalize the deal.
The drama began in early April when Musk revealed a significant stake in Twitter. After first agreeing to join the Twitter board, he reversed course and instead offered to buy the company or sell his holdings.
Twitter initially opposed the deal and tried another route, but eventually reached a deal to sell to Musk for around $ 54.20 per share. But then, with the market crash and Twitter’s share price plunging, Musk began to speak ill of Twitter in public in a clear attempt to get out of the deal.
Here is a rundown of the latest developments based on new, and some prior confidential, court documents filed by both sides:
Numbers “far from true”
In a legal filing, Musk accused Twitter of including statements in its SEC revelations that “were far from true.” 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 image.
Musk has been complaining about Twitter scams, spam and bots for years.
In a press release announcing his agreement to buy Twitter, Musk wrote that “defeating spam bots” was one of his goals and motivations for taking over the company.
Twitter responded in a separate filing with the Delaware court this week that Musk and his team had “spent months trying to come up with a spam disclosure problem and found nothing.”
Poorly defined metrics
Musk’s attorneys also said in their counterclaim that Twitter’s “monetizable daily active users”, or mDAU, “aren’t as tightly tied to revenue as Twitter has the public believe.” They claim that Twitter doesn’t accurately explain to shareholders or Musk how the mDAU key metric is derived.
In response, Twitter said Musk never raised concerns about mDAU as a reason to terminate the deal.
Musk’s allegations of misleading mDAU statistics “are a newly invented contentious position,” Twitter lawyers wrote. Additionally, Twitter said it “accurately discloses in its SEC documents” how it defines the mDAU metric and what it means to the company.
Relying on archives
Musk said in his counterclaim that he relied on Twitter’s SEC documents to ascertain 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 reported by CNBC 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 finance company managed in part by Twitter board member Egon Durban. Silver Lake was an early supporter of SolarCity, where Musk served as president, and it was reported that he was one of the companies that advised Musk when he said he was considering taking private Tesla for $ 420 a share and that he had “funded” 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 “are not supported by any facts”.
“Musk sought an urgent settlement, did not undertake due diligence, and offered a self-described” friend of the seller “merger agreement that did not contain any false account statements or spam or mDAUs, the Twitter attorneys wrote.
Musk said Twitter rejected his team, failing to deliver the requested and needed information about bots and spam on the platform. The complaint does not mention that Musk said he could launch a competing social media platform.
Twitter’s attorneys said “Musk invents representations that Twitter has never made and therefore tries to selectively use the extensive confidential data Twitter has provided him to evoke a violation of those alleged representations.”
Lawyers said Musk “argues inconsistently” that Twitter “violated the merger agreement by obstructing its inquiries.”
Double the robots
Accusing Twitter of having at least twice as many bots on its platform as the company revealed, Musk’s team relied on “accounts visible on Firehose using the Indiana University Botometer tool,” the counterclaim states.
Twitter questioned Musk’s spam and bot analysis methods, most notably the use of the Botometer tool. Lawyers wrote that the tool “applies different standards to Twitter and that earlier this year it designated Musk himself as highly likely to be a bot.”
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