The Twitter-Elon Musk saga continued this week as the two sides traded barbs in legal filings ahead of a five-day trial that is scheduled to begin on October 17.
Newly released legal documents from lawyers representing Musk in a lawsuit against Twitter claim the social media company engaged in a scheme to “deceive investors” by providing false numbers in financial filings to the Securities and Exchange Commission . Musk charges that the Twitter platform has at least twice as many bots as the company claims in SEC filings and fewer “monetizable daily active users” than it claims.
Twitter shot back that the billionaire CEO of Tesla and SpaceX is making the wrong assumptions and looking for an excuse to back out of his $44 billion deal in April to buy the social network.
The two sides are building their cases ahead of a Delaware court date set to resolve the dispute over whether Musk should go ahead with the deal.
The drama began in early April, when Musk revealed a major stake on Twitter. After first agreeing to join Twitter’s board, he reversed course and offered to either buy the company or sell his stake.
Twitter initially opposed the deal and sought another route, but eventually reached an agreement to sell to Musk for about $54.20 per share. But then, with the market falling and Twitter’s stock price plunging, Musk began bad-mouthing Twitter in public in a clear effort 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 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 the social media company is “miscounting the number of fake and spam accounts on its platform” to give investors an optimistic picture.
Musk has been complaining about scams, spam and bots on Twitter for years.
In a Press release announcing his deal to buy Twitter, Musk wrote that “defeating the spam bots” was one of his goals and motivations for taking over the company.
Twitter responded in a separate Delaware court filing this week that Musk and his team “have spent months trying to invent a spam disclosure problem and have come up with nothing.”
Poorly defined metrics
Musk’s lawyers also said in their lawsuit that Twitter’s “monetizable daily active users,” or mDAU, “are not as closely tied to revenue as Twitter leads the public to believe.” They allege that Twitter does not accurately explain to shareholders or Musk how they derive the key mDAU metric.
In response, Twitter said Musk never raised mDAU concerns as a reason to terminate the deal.
Musk’s allegations of misleading mDAU statistics “are a newly invented litigation position,” Twitter’s lawyers wrote. Additionally, Twitter said it “accurately discloses in its SEC filings” how it defines the mDAU metric and its importance to the company.
Confidence in the files
Musk said in his counterclaim that he relied on Twitter’s SEC filings for 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 early backer of SolarCity, where Musk served as chairman, and was reportedly one of the companies Musk advised when he said he was considering taking Tesla private for $420 a share and that he had “guaranteed funding” to do so.
Twitter reiterated in its filings that the company’s “SEC disclosures are accurate” and that the company “did not misrepresent anything.” Twitter said Musk’s claims “are not supported by any facts.”
“Musk sought a rushed deal, failed to conduct any due diligence, and offered a self-styled ‘seller-friendly’ merger agreement that contained no representations about fake or spam accounts or mDAUs,” they wrote Twitter lawyers.
‘Stonewalling’
Musk said Twitter rejected his team and failed to deliver necessary and requested information about bots and spam to the platform. The complaint does not mention that Musk said he might start a competing social media platform.
Twitter’s lawyers alleged that “Musk invents representations that Twitter never made and then attempts to selectively use the extensive confidential data that Twitter provided to him to conjure up a breach of those alleged representations.”
The lawyers said Musk “inconsistently claims” that Twitter “breached the merger agreement by shutting down their information requests.”
Double the bots
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 Indiana University’s Botometer tool,” it says the counterclaim
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 than Twitter does and earlier this year designated Musk himself as most likely a bot.”
I WILL SEE: Twitter’s legal team subpoenas Elon Musk’s associates related to the deal breakup
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