Musk accuses Twitter of fraud, but says deal can still be done with proof of real accounts

The Tesla chief says the microblogging site misled him about important aspects of its business before he agreed to the buyout

Elon Musk is preparing for what is expected to be a long drawn-out court battle with Twitter starting on October 17. AFP
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Elon Musk, who withdrew his bid to buy Twitter for $44 billion, accused the microblogging site of fraud, but then said the acquisition can still go through if the company can provide proof that its user accounts are real.

The billionaire chief executive of Tesla Motors alleged that Twitter misled him about important aspects of its business before he agreed to the buyout, Mr Musk said in a filing to a Delaware court on Thursday.

“Twitter's disclosures have slowly unravelled, with Twitter frantically closing the gates on information in a desperate bid to prevent the Musk Parties from uncovering its fraud,” the claim alleged.

Then, on Saturday, Mr Musk tweeted that if Twitter “simply provides their method of sampling 100 accounts and how they’re confirmed to be real, the deal should proceed on original terms”.

The development is the latest twist in the saga between Mr Musk and Twitter. A trial between the two sides, which is expected to be long drawn-out and messy, is set to begin on October 17.

The back-and-forth in the past few months has caused Twitter's stock to drop, and unrest and resignations among its employees, including executives.

Mr Musk became a major Twitter stockholder following his revelation that he purchased 73.5 million shares in early April. Less than two weeks later, he launched a hostile and surprise takeover bid. After initial wrangling — including employee unrest — Twitter's board caved in and agreed to the purchase.

Mr Musk then set off to secure financing for the acquisition, including selling his stocks in Tesla. He has also received commitments from several investors who had pledged up to $1bn in funding.

Then, in mid-May, Mr Musk said the deal “cannot move forward” unless Twitter provided proof that less than 5 per cent of its users are fake. Twitter bots amount to up to 12 per cent of visits on the platform, a study revealed this week. Critics have said that Mr Musk made the declaration so he could negotiate a lower price.

The US Securities and Exchange Commission — with which Mr Musk has had repeatedly locked horns — has asked him to explain why he did not disclose, within a required 10-day period, his increased stake in the company, especially if he was planning to buy it.

In July, he filed paperwork to terminate the transaction, and blamed Twitter for breaching the agreement by misrepresenting the number of fake accounts on its platform. On July 12, Twitter filed a legal challenge accusing Mr Musk of breaching the agreement. Mr Musk filed a countersuit on July 29.

Twitter on Thursday had fired back at Mr Musk through a filing with the US Securities and Exchange Commission.

“According to Musk, he — the billionaire founder of multiple companies, advised by Wall Street bankers and lawyers — was hoodwinked by Twitter into signing a $44 billion merger agreement,” Twitter said.

“That story is as implausible and contrary to fact as it sounds. And it is just that — a story, imagined in an effort to escape a merger agreement that Mr Musk no longer found attractive once the stock market, and along with it, his massive personal wealth, declined in value.”

Twitter had stood by its numbers, saying that bots make up about 5 per cent of the platform, while Mr Musk cited it as high as 20 per cent.

In a separate development, Twitter subpoenaed an official of a trust controlled by Oracle founder Larry Ellison, which committed $1bn to Mr Musk’s buyout of the social media company.

The company’s lawyers are demanding Ellison Trust representative Philip Simon submit details of their involvement in the transaction, according to court filings on Friday.

Twitter has been seeking information from more than a dozen people or investment firms that committed equity to Mr Musk’s purchase, as well as the banks that advised him and pledged billions in financing.

Updated: August 06, 2022, 1:27 PM