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Elon Musk v. Twitter: a Third Powerful Player Makes Noise

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Elon Musk and the management of Twitter ( (TWTR) – Get Twitter Inc. Report) are at loggerheads. 

The two parties are now preparing for their legal battle, the outcome of which will undoubtedly have repercussions on mergers and acquisitions in the future. 

After nearly three months of a saga marked by twists and surprises, the richest man in the world has decided not to acquire the microblogging website Twitter as he envisaged in mid-April. Musk said his reversal was due to a strong presence of spam bots or fake accounts on the platform. Twitter management has misrepresented the number of these fake accounts, Musk said, even though he was aware of the problem before making his $44 billion offer on April 14. 

Twitter has taken legal action too.

Enter the SEC

But another front has just opened in this war which fascinates the business community and Wall Street. Indeed, the U.S Securities and Exchange Commission (SEC) is reviewing Musk’s various communications in the case to see if the tech titan violated financial disclosure rules.

The regulator focuses mainly on tweets from Musk, who uses Twitter as his main communication channel. The SEC has therefore published two letters on July 14 in which it becomes clear that the federal agency is investigating in particular a post of May 17 from Tesla ( (TSLA) – Get Tesla Inc. Report)’s chief executive officer.

“We note that on May 17, 2022, Elon R. Musk referred to the pending acquisition of Twitter, Inc. and publicly stated via his Twitter feed that “[t]his deal cannot move forward”, the SEC wrote in a letter sent to the billionaire on June 2. “The term ‘cannot’ suggests that Mr. Musk and his affiliates are exercising a legal right under the terms of the merger agreement to suspend completion of the acquisition of Twitter or otherwise do not intend to complete the acquisition.”

The regulator believes that this statement should have been disclosed to the financial community by amending a previous document filed with the SEC

“Provide us with a written analysis in support of any conclusion that an amendment is not required,” the SEC added.

Musk’s response through his attorneys is contained in a letter dated June 7, which was also made public by the SEC. Musk’s advisers (Skadden, Arps, Slate, Meagher & Flom llp) believe that there was no need to amend the official documents to reflect his post.

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“Mr. Musk does not believe, however, that the May 17, 2022 social media posts regarding spam and fake accounts on Twitter Inc.’s platform triggered any required amendment to his previously” filing, Musk’s lawyers said in their letter. “Despite Mr. Musk’s desire to obtain information to evaluate the potential spam and fake accounts, there was no material change to Mr. Musk’s plans and proposals regarding the proposed transaction at such time.”

Tensions and History

The exchange between the SEC and Musk’s lawyers shows that the federal agency is continuing its investigation into the mogul’s communications in this Twitter saga. The regulator had launched its investigation after Musk used the wrong form to announce that he had acquired 9.1% of Twitter’s capital in early April.

There are tensions between the two parties because in its letter, the SEC says that it communicated its requests to Musk’s lawyers by telephone on May 18 but has still not received a response. As a result, the agency decided to contact the billionaire by mail. The regulator also indicates to the serial entrepreneur that it reserves the right to make public the letters exchanged with him.

“We may decide to release publicly (…) all correspondence, including this letter, relating to the review of your filing,” The SEC warns.

This isn’t the first time Musk and the SEC have clashed over tweets. Musk has battled the SEC in the past when he said he could take Tesla private and later paid a $20 million fine. He signed an agreement in 2018.

In April, a New York federal judge told the billionaire in a ruling that he would not end the agreement that called for him to have his social media posts approved by a company attorney if they consisted of material information about Tesla.

Musk pushed backed and said that previous agreement hindered his ability to have freedom of speech. He said the SEC used the agreement to “launch endless, boundless” investigations of his public statements.

“None of the arguments hold water,” Judge Lewis J. Liman of the U.S. District Court for the Southern District of New York wrote in a ruling.

The battle with the SEC began in 2018 when Musk tweeted and claimed that he had “secured” the financing needed to take Tesla private. The SEC sued him for committing fraud after determining that he had only started discussions with investors.

He has been accused of violating the terms of his agreement with his copious tweets.

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