Remember last year when Elon Musk was going around pretending that Twitter Inc. was doing a whole assortment of fraud, hoping that some of it would stick so that he could get out of his deal to buy Twitter? That was annoying. It did not go well, for him, and he eventually dropped it and bought Twitter at the price he had originally agreed to. But if you go around telling everyone that a US public company is committing all sorts of fraud, then some securities lawyers are definitely going to sue the company for that alleged fraud, and they definitely did.
And now Musk owns the company and has to defend that fraud suit — hard, given that he has previously claimed to agree with it! — or else pay damages — unfair, since, in the somewhat imaginary world in which Twitter was doing a bunch of fraud, Musk is the biggest victim of that fraud! On the fraud theory of Twitter, Twitter was doing a bunch of fraud that propped up its stock price, and then Musk agreed to buy it at a premium to that inflated price, and then the fraud was disclosed, and then Musk grumbled but bought it anyway at that inflated premium price, and now the shareholders who sold get to sue him for more money? Seems very unfair, and yet somehow hilariously deserved.
Anyway yesterday the plaintiffs in the federal securities fraud case against Twitter filed their amended complaint. It plays all the hits that you might remember from last year — mDAUs! Mudge! — and I am absolutely not going to read or write about any of the fraud claims. The weird part is figuring out how the shareholders were, allegedly, harmed. Let’s say that Twitter was doing assorted frauds that inflated its price: Musk still bought it at that inflated price. So how did shareholders get hurt? From the complaint:
In April 2022, Twitter’s Board accepted a buyout offer from Elon Musk (“Musk”). Yet the deal quickly soured.
On May 13, 2022, before the market opened, Musk tweeted out concerns about Twitter’s representations concerning the number of bots. Twitter’s stock price fell 9.7% that day, falling another 8.2% over the next day as Musk continued to tweet his concerns.
On July 7, 2022, the Washington Post reported that Musk had stopped engaging in certain discussions around the deal. Twitter’s stock price fell 5.1%.
Then on July 8, 2022, Twitter publicly filed with the SEC a letter from Musk terminating the deal, citing misrepresentations concerning the number of bots. Twitter’s stock price plunged 11.3%.
On the weekend of May 14 and 15, 2022, Musk continued to tweet about the prevalence of fake or spam accounts on Twitter. On May 14, Musk tweeted that his “team will do a random sample of 100 followers of @twitter” to determine how many were fake or spam accounts, and that “I picked 100 as the sample size because that is what Twitter uses to calculate <5% fake/spam/duplicate.” Later that same day, Musk tweeted: “Twitter legal just called to complain that I violated their NDA by revealing the bot check sample size is 100! This actually happened.” On May 15 he said in two tweets that “I have yet to see *any* analysis that has fake/spam/duplicates at 5%”. Further, during the trading day on May 16, 2022, in response to tweets by Defendant Agrawal concerning the prevalence of fake or spam accounts, Musk asked on Twitter “So how do advertisers know what they’re getting for their money? This is fundamental to the financial health of Twitter.”
In response to this news, the price of Twitter’s common stock fell 8.18%, or $3.33, from a closing price of $40.72 on May 13, 2022, to close at $37.39 on the next trading day, May 16, 2022.
So what? Eventually Musk bought Twitter for $54.20 per share, as agreed. But I think what those passages mean is that if you bought Twitter stock after Musk agreed to buy Twitter, and then you sold it after Musk tweeted it was a fraud and the stock dropped, you lost money and are entitled to compensation from Twitter. They’re suing Musk for tweeting that Twitter was a fraud. Serves him right, really.
In other news, here is a story about Musk allegedly firing an engineer who told him that people don’t read his tweets because they’ve lost interest, and here is another story about how Twitter is allegedly injecting Musk’s tweets into users’ timelines. Look, I mean, as a Twitter user, I do not love that Twitter is now the Elon Musk Show all the time. But, as a Twitter user, he clearly loves that, and he does own the company! He can do what he wants! When he first bought shares in Twitter, I imagined a dialogue between Musk (as a big but outside shareholder and a devoted user of Twitter) and then-Chief Executive Officer Parag Agrawal:
Elon Musk: Make the font bigger when I tweet.
Musk: I am your biggest shareholder, I want the font on my tweets to be bigger than the font on everyone else’s tweets.
Agrawal: That’s not really how we—
Musk: And I want 290 characters. Again, just for me.
Musk: And it should play a little sound when I tweet so everyone knows.
Then he bought the company and fired Agrawal and everyone else who objected to this plan, so here we are I guess.