The Twitter-Elon Musk saga continued this week, with the two sides trading barbs at legal filings ahead of a five-day trial set to begin in October. 17.
Newly released legal documents from lawyers representing Musk in a counter-suit against Twitter allege that the social media company engaged in a scheme to “mislead investors” by filing false numbers in financial filings with the Securities and Exchange Commission. Musk charges that Twitter has at least twice as many bots as the company claims in SEC filings and fewer “monetable daily active users” than it claims.
Twitter responded that the Tesla and SpaceX billionaire CEO is making incorrect assumptions, and is looking for an excuse to back out of his $44 billion agreement in April to buy the social network.
The two sides build their cases in the run-up to a Delaware court date set to resolve the dispute over whether Musk should pursue the deal.
The drama began in early April, when Musk revealed a large Twitter stake. After first agreeing to join Twitter’s board of directors, he reversed course and instead offered to buy the company or sell his property.
Twitter initially opposed the deal, and sought another path, but eventually reached an agreement to sell to Musk for $54.20 per share. But then, with the market plummeting and Twitter’s stock price plummeting, Musk started making Twitter public in an apparent attempt to get out of the deal.
Here is a summary of the latest developments based on the new filings, some of which were previously confidential, to court from both parties:
The numbers are ‘far from the truth’
In a legal filing, Musk accused Twitter of including statements in the Securities and Exchange Commission disclosures that “were far from the truth.” Through his law firm Skadden-Arps, Musk said the social media company “miscounts the number of fake and spam accounts on its platform” to give investors a rosy picture.
Musk has complained about scams, spam, and bots on Twitter 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 in a Delaware court this week that Musk and his team “spent months trying to devise a spam detection problem and found nothing.”
Musk’s lawyers also said in their counter-claim that Twitter’s “Menable Daily Active Users”, or mDAU, “are not as closely linked to revenue as Twitter leads the public to believe.” They claim that Twitter does not accurately explain to contributors or to a holder how they derived the MDAU key metric.
In response, Twitter said Musk had never raised concerns about the mDAU as a reason to terminate the deal.
Twitter’s lawyers wrote that Musk’s allegations about misleading MDAU statistics “are a newly invented litigation position.” Additionally, Twitter said it “accurately discloses in SEC filings” how it defines the MDAU metric and its importance to the company.
Reliance on deposits
In his counter suit, Musk said he relied on Twitter’s SEC filings to ascertain details about the social network’s business and the challenges it faces.
What Musk doesn’t say is that he was friends for years with former Twitter CEO Jack Dorsey. As CNBC reported in January 2020, the two executives exchanged ideas on how to improve Twitter.
Musk also has a long-standing working relationship with Silver Lake, a financial firm managed in part by Twitter board member Egon Durban. Silver Lake was a big and early supporter of SolarCity, where Musk served as president, and was reportedly one of the companies advising Musk when he said he was considering acquiring Tesla for $420 a share, and that “funding was secured” to do so.
Twitter reiterated in its filings that “the company’s disclosures about securities and exchanges are accurate” and that the company “did not misrepresent anything.” Twitter said Musk’s claims were “not backed up by any facts.”
Twitter’s lawyers wrote: “Musk sought an expedited deal, did not perform due diligence, and offered a self-described ‘seller-friendly’ merger agreement that did not include any commitments about fake accounts, spam or mDAU.”
Musk said Twitter rejected his team, failing to deliver needed and necessary information about bots and spam on the platform. The complaint did not mention that Musk said he might start a competing social media platform.
Twitter’s lawyers claimed that “Musk never invented Twitter’s offerings and then attempts, selectively, to use the extensive confidential data provided to him by Twitter to elicit a breach of those alleged pleas.”
The lawyers said Musk “incoherently asserts” that Twitter “violated the merger agreement by denying his requests for information.”
Double the robots
In accusing Twitter of having at least twice as many bots on its platform that the company disclosed, Musk’s team relied on “visual calculations on Firehose using the Indiana University’s Botometer tool,” the counter-suit says.
Twitter has questioned Musk’s methods for analyzing spam and bots, especially the use of the Botometer tool. The lawyers wrote that the tool “applies different criteria to those of Twitter, which earlier this year classified Musk himself as highly likely to be a bot.”
Watch: Twitter’s legal team is summoning Elon Musk’s associates in connection with the breakup of the deal