Twitter-Musk drama escalates in legal filings alleging misconduct

Twitter-Musk drama escalates in legal filings alleging misconduct

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 from lawyers representing Musk in a countersuit against Twitter allege the social media company engaged in a scheme to “mislead investors” by providing false numbers in financial filings with the Securities and Exchange Commission. Musk says Twitter’s platform has at least twice the number of bots the company claims in SEC filings and fewer “monetable daily active users” than claimed.

Twitter responded that the billionaire CEO of Tesla and SpaceX is making incorrect assumptions and is looking for an excuse to back out of the $44 billion deal in April to buy the social network.

Both sides are building their case as they go to court in Delaware to resolve the first dispute over whether Musk must follow through on the deal.

The drama began in early April, when Musk revealed a significant stake in Twitter. After Musk agreed to join Twitter’s board, he reversed course and instead offered to buy the company or sell his Twitter holdings.

Twitter initially opposed the deal, seeking another route, but eventually agreed to sell to Musk for about $54.20 per share. After that, as the market tanked and Twitter’s stock price fell, Musk began talking about Twitter publicly in an apparent attempt to get out of the deal.

Here is an overview of the latest developments based on new, and some previously confidential, submissions to the court from both parties:

Figures “far from true”

In a legal filing, Musk accused Twitter of including statements in its SEC disclosures that were “far from true.” Through his corporate law firm Skadden-Arps, Musk said Twitter “miscalculates the number of fake accounts and spam accounts on its platform” to paint a rosy picture for investors.

Musk has been complaining about fraud, spam and bots on Twitter for years.

In a press release announcing his deal to buy Twitter, Musk wrote that “defeating the spambots” was one of his goals and motivations for taking over the company.

Twitter responded in a separate filing in Delaware court this week that Musk and his team have “spent months trying to figure out a spam detection problem and have found nothing.”

Poorly defined calculations

Musk’s lawyers also said in their countersuit that Twitter’s “monetable daily active users,” or mDAU, “are not as closely tied to revenue as Twitter leads the public to believe.” They claim that Twitter does not accurately explain to shareholders or Musk how it derives the key metric of mDAU.

In response, Twitter said Musk never raised concerns about mDAU as a reason to end the deal.

Musk’s allegations of misleading mDAU statistics “are a newly invented legal position,” Twitter’s lawyers wrote. In addition, Twitter said it “accurately discloses in its SEC filings” how it defines the mDAU metric and its meaning to the company.

Dependency on registrations

Musk said, in the countersuit, that he relied on Twitter’s SEC filing to find out 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 partly run by Twitter board member Egon Durban. Silver Lake was a big early backer of SolarCity, of which Musk was chairman, and was reportedly one of the firms that advised Musk when he said he was considering taking Tesla private for $420 a share, and had “secured financing” to do it.

Twitter reiterated in its filings that the company’s “SEC disclosures are accurate” and that the company “has not made any misrepresentations.” Twitter said Musk’s claims were “not supported by any facts.”

“Musk sought a rush deal, did no due diligence, and offered a self-styled ‘seller-friendly’ merger agreement that contained no representations about fake or spam accounts or mDAU,” the Twitter lawyers wrote.

Stone masonry

Musk said Twitter rejected his team, failing to hand over 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 lawyers alleged that “Musk makes up representations that Twitter never made and then tries to use, selectively, the extensive confidential data Twitter provided him to conjure up a breach of those alleged representations.”

The lawyers said Musk “incoherently claims” that Twitter “violated the merger agreement by shutting down his requests for information.”

Double the robots

In accusing Twitter of having at least twice as many bots on its platform as the company disclosed, Musk’s team relied on “accounts visible on Firehose using the University of Indiana Botometer tool,” the counterclaim says.

Twitter questioned Musk’s methods for analyzing spam and bots, particularly his use of the Botometer tool. The lawyers wrote that this tool “uses different standards than Twitter does, and which Musk himself identified as highly likely to be a bot earlier this year.”

SEE: Twitter’s legal team is suing Elon Musk employees related to breach of contract

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