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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 “monetizable daily active users” than it claims.
Twitter responded that the billionaire CEO of Tesla and SpaceX is making false assumptions and looking for an excuse to back out of his $44 billion deal in April to buy the social network.
Both sides are building their case as they head to court in Delaware to resolve their initial dispute over whether Musk should honor the deal.
The drama began in early April when Musk revealed a significant stake on Twitter. After Musk agreed to join Twitter’s board, he changed course and instead offered to buy the company or sell his Twitter holdings.
Twitter was initially opposed to the deal and sought another route, but eventually reached an agreement to sell to Musk for about $54.20 per share. After that, as the market tanked and Twitter’s stock price fell, Musk began badmouthing Twitter publicly 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 parties:
The numbers “far from the truth”
In a legal filing, Musk accused Twitter of including statements in SEC disclosures that were “not true at all.” Through his corporate law firm Skadden-Arps, Musk said Twitter was “miscalculating the number of fake and spammy accounts on its platform” to paint a rosy picture for investors.
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 spam bots” was one of his goals and motivations for taking over the company.
Twitter responded in a separate filing in a Delaware court this week that Musk and his team “have been trying for months to invent a spam disclosure problem and came up with nothing.”
Unspecified metrics
Musk’s lawyers also said in their counterattack that Twitter’s “monetizable daily active users,” or mDAUs, “are not as closely related to revenue as Twitter leads the public to believe.” They claim that Twitter is not accurately explaining to shareholders or Musk how they derive the key mDAU metric.
In response, Twitter said Musk never cited mDAU concerns as a reason to end the deal.
Musk’s claims about misleading mDAU statistics “are a newly invented court position,” Twitter’s lawyers wrote. In addition, Twitter said it “accurately discloses in its SEC filings” how it defines the mDAU metric and what it means to the company.
Reliance on filings
Musk said in his counterclaim that he relied on Twitter’s SEC filings to ascertain details about the social network’s activities 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 was chairman, and was reportedly one of the companies that advised Musk when he said he was considering taking Tesla private for $420 a share and had “secured financing.” for him to do it.
Twitter reiterated in its filings that “the company’s SEC disclosures are accurate” and that the company “didn’t misrepresent anything.” Twitter said Musk’s claims were “not supported by any evidence.”
“Musk sought a rush deal, failed to perform due diligence and offered a self-described ‘seller-friendly’ merger agreement that contained no statements about false or spammy accounts or mDAUs,” Twitter’s lawyers wrote.
masonry
Musk said Twitter let his team down by failing to deliver requested and necessary information about bots and spam on the platform. The complaint does not say that Musk said he might launch a competing social media platform.
Twitter’s lawyers claimed that “Musk invents representations that Twitter never made and then attempts to use, selectively, the extensive confidential data provided to him by Twitter to invent infringement of those alleged representations.”
The lawyers said Musk “incoherently asserts” that Twitter “violated the merger agreement by refusing 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 “accounts visible on Firehose using Indiana University’s Botometer tool,” the countersuit says.
Twitter questioned Musk’s spam and bot analysis methods, particularly his use of the Botometer tool. The lawyers wrote that this tool “applies a different standard than the one applied by Twitter, which earlier this year defined Musk himself most likely a bot.”
I’M WATCHING: Twitter’s legal team is subpoenaing Elon Musk associates related to the deal breakup
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