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No Stranger To Paying Support After Screwing Around, Elon Musk Faces Twitter Lawsuit Over Failed Deal

elon musk smokingElon Musk played fast and loose with SEC regulations and ended up paying the government. Elon Musk has two ex-wives and 10 kids — including twins we only heard about last week! — and presumably owes hefty support. All this is to say that Musk’s life is defined by screwing around and then writing checks after the fact.

Twitter intends to add to Musk’s payroll when it sues the billionaire after Musk divorced the company he earlier pledged to buy.

The day after Elon Musk announced his agreement to buy Twitter, I posted that this deal would probably blow up the speculative bubble driving his fortune into the stratosphere. Tesla investors would flee before Musk could go through with paying an exorbitant price for a platform he had no real plan to monetize and another pool of his wealth — cryptocurrency — would finally experience the long-overdue implosion befitting a warmed over pump and dump. Elon Musk would still be very, very rich… but he wasn’t going to find himself “pay $45B to buy a social media company for LOLZ” rich.

As it happened, all of that came to pass! Pretty quickly after the announcement, actually! And that’s when Musk began what resembled a half-baked campaign to put himself in breach of the merger agreement, hoping that Twitter would give up on the deal. But since Twitter stood to gain a ton from the deal going through and was now fully aware that Musk was trying to get out of it — triggering the $1B fee Musk would have to pay if he nixed the deal — the company just smiled and nodded while Musk lobbed insults.

Now that Musk has fully abandoned the deal, Twitter has mobilized to get what’s coming to them, bringing on Wachtell to complement its team from Simpson Thacher and Wilson Sonsini. The company plans to file suit in Delaware this week.

And yet, Musk still doesn’t seem to grasp the magnitude of his legal problems.

As Professor Rick Hasen put it, “We might as well assign this an Exhibit number now.”

Musk’s fascination with this “bot” argument is stupid, but it’s become the all-encompassing mantra for Tesla Bros and the segment of right-wing social media that have curiously adopted Musk as a patron saint. As Matt Levine explained in great detail, this argument makes no sense:

[Musk’s attorney Skadden’s Mike] Ringler says that “it appears that Twitter is dramatically understating the proportion of spam and false accounts represented in its mDAU count.” There is not a whisper of evidence for this claim, no hint that there might be evidence, no acknowledgement that a reasonable reader of this letter might want to see evidence. The only basis for the claim is that “preliminary analysis by Mr. Musk’s advisors of the information provided by Twitter to date causes Mr. Musk to strongly believe that the proportion of false and spam accounts included in the reported mDAU count is wildly higher than 5%.” Notice that Ringler does not say that the analysis shows that the bots are “wildly higher than 5%” of mDAUs: That would be a factual claim that, I suspect, Musk’s advisers know is false. They make only the subjective claim that Musk “strongly believes” it. I don’t even believe that he believes it! But that’s harder to disprove.

Plus, as Levine points out, Musk went on record multiple times saying that he wanted to buy Twitter to fix the bot problem, making his claim that it would be a material adverse event to learn that there might be a bot problem laughable on its face.

Which brings us to Musk’s related but distinct argument that Twitter failed to give him the information he wants. As part of the merger agreement, Twitter committed to give Musk access to information to help complete the deal. On the back of this provision, Musk kept making onerous requests to set up a case for killing the deal. Back to Levine’s analysis:

And in fact Ringler’s letter makes it pretty clear that that’s what Musk was up to: He’d ask for information about bots, and they’d give it to him, and he’d ask for more, and he’d keep trying to get information that he could use to undermine Twitter’s SEC reports. He buried Twitter in an avalanche of demands for data

Coupled with a provision in the agreement that allows Twitter to not provide information that could hurt the competitiveness of the company and Musk’s insistence that he’s looking for information that would hurt the company he’s not setting up the best case for himself.

He now seems to galaxy brain believe that Twitter’s lawsuit will require it to fork over the “information” Musk thinks they’ve been hiding. Since Twitter’s representation was just that the SEC filings were correct and the SEC filings said that the company tests a random sampling to reach a statistically responsible estimate that bots are less than 5 percent of all users, it’s not clear what additional information would be relevant beyond what the company claims to have handed over already. Discovery is pretty powerful but it doesn’t let you just go fishing beyond the confines of the actual dispute at hand. If they performed sampling and got to 5 percent, discovery isn’t going to force them to conduct a different study to hypothetically find another 50 or 60 percent of all accounts being fake.

But Musk’s social media suggests he’s committed to wandering down this path anyway. I hope Skadden’s not getting paid in Dogecoin.

Elon’s Out [Bloomberg]
Twitter hires law firm Wachtell to sue Musk after pulling out of $44 billion deal [Reuters]

Earlier: Elon Musk Takes Time Out From Failing To Buy Twitter To Fail To Build His Own Law Firm
Elon Musk Already Breached The Twitter Takeover Agreement? With His Stellar Record Of Following The Rules?

HeadshotJoe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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