Elon Musk and Twitter’s leadership ((TWTR) – Get Twitter Inc. Report) are at odds.
The two parties are currently preparing for their legal conflict, which will unquestionably have an impact on mergers and acquisitions in the future if it is successful.
The world’s richest man has decided not to purchase the microblogging website Twitter as he had planned in mid-April after nearly three months of a saga full of turns and surprises. Musk claimed that the reason for his reversal was the platform’s heavy use of spam bots or fake accounts. Musk claimed that, despite being aware of the issue prior to making his $44 billion offer on April 14, Twitter management had overstated the number of these fake accounts.
Twitter has also pursued legal action.
Access the SEC
However, a new front in this conflict, which fascinates Wall Street and the business world, has just opened. Indeed, the Securities and Exchange Commission (SEC) of the United States is investigating the matter and looking into Musk’s various communications to see if the tech giant broke any financial disclosure laws.
As Musk’s primary form of communication, the regulator focuses primarily on his tweets. So, on July 14, the SEC released two letters that make it clear that it is looking into a post made by the CEO of Tesla ((TSLA) – Get Tesla Inc. Report), specifically one from May 17.
“We note that on May 17, 2022, Elon R. Musk made reference to the proposed acquisition of Twitter, Inc. and publicly stated via his Twitter feed that “[t]his deal cannot move forward”, the SEC stated in a letter it sent to the billionaire on June 2. “The word ‘cannot’ implies that Mr. Musk and his affiliates are exercising a legal right under the merger agreement to suspend completion of the acquisition of Twitter or otherwise do not intend to complete the acquisition,” according to the merger agreement.
This statement, in the opinion of the regulator, should have been disclosed to the financial community by amending a prior document submitted to the SEC,
The SEC further requested that any conclusions that an amendment was not necessary be supported by a written analysis.
In a letter dated June 7 that was also made available to the public by the SEC, Musk responds via his attorneys. There was no need to change the official documents to reflect Musk’s post, according to his advisors (Skadden, Arps, Slate, Meagher & Flom llp).
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However, Mr. Musk “does not believe that the social media posts regarding spam and fake accounts on Twitter Inc.’s platform on May 17, 2022 triggered any required amendment to his previously” filed documents, according to Musk’s lawyers in their letter. The proposed transaction was not changed materially by Mr. Musk’s plans and proposals at that time, despite his desire to gather information to assess the potential spam and fake accounts.
A History of Tensions
The SEC is still looking into Elon Musk’s communications in this Twitter saga, as evidenced by the investigation between the federal agency and the businessman’s lawyers. Following Musk’s announcement in early April that he had purchased 9.1 percent of Twitter’s stock using the incorrect form, the regulator opened an investigation.
There is a rift between the two parties as the SEC claims in its letter that it telephoned Musk’s attorneys on May 18 to make its requests but has yet to hear back. As a result, the agency made the decision to write to the billionaire. The regulator also informs the serial entrepreneur that it retains the right to make the correspondence with him public.
“We may decide to release publicly (…) all correspondence, including this letter, relating to the review of your filing,” the SEC cautions.
Musk and the SEC have had disagreements over tweets before. When he claimed he could take Tesla private and later paid a $20 million fine, Musk had previously engaged in legal battles with the SEC. He committed to something in 2018.
A New York federal judge told the billionaire in a ruling in April that he would not terminate the agreement that required him to have his social media posts approved by a company attorney if they contained information about Tesla that was material.
The previous agreement, according to Musk, limited his ability to exercise his right to free speech. The SEC, he claimed, utilized the agreement to “launch an indefinite number of inquiries into his public pronouncements.
Judge Lewis J. Liman of the U.S. District Court for the Southern District of New York ruled that “none of the arguments hold water.”
The conflict with the SEC started in 2018 when Musk tweeted that he had “secured” the funding required to take Tesla private. After determining that he had only begun conversations with investors, the SEC filed a lawsuit against him for fraud.
With his numerous tweets, he has been charged with breaking the terms of his contract.
