Elon Musk ‘Hold’ Twitter Deal Sparks Securities Fraud Concerns

Elon Musk ‘Hold’ Twitter Deal Sparks Securities Fraud Concerns

Elon Musk’s announcement that his deal to buy Twitter was “temporarily on hold,” driving down share prices and the value of the company he bought, is raising concerns about possible securities fraud.

He insisted hours later that he was “still committed to acquisition.”

With his massive platform on Twitter, Musk can rock the stock market with a single sentence. His tweet on Friday that his $44 billion commitment to buy Twitter was “temporarily on hold” because there may be more fake accounts and bots on Twitter than he realized sent Twitter stock down as much as 25%. .

Musk himself decided to forgo due diligence before his offer. If he hadn’t, he could have thoroughly investigated the company. On Friday night he said in a tweet that his “team” would do a study of 100 randomly chosen Twitter profiles to try to confirm that they were authentic and asked other users to do the same.

But it was time for due diligence under the terms of their deal.

“’Temporarily on hold’ is not a thing,” Bloomberg columnist Matt Levine wrote on Friday. “Elon Musk has signed a binding contract that requires him to buy Twitter.” The contract “does not allow Musk to withdraw if it turns out that ‘unwanted/fake accounts’ represent more than 5% of Twitter users,” the company revealed in its quarterly reports last month, Levine added.

When buying a company, “you’re not supposed to say things that aren’t true and that will affect the stock of a public company that you’re trying to buy,” Levine said. “That’s what’s generally called ‘securities fraud,’ or what I sometimes like to call ‘lightweight securities fraud.’ Musk has a long history of light securities fraud.”

Musk settled a fraud lawsuit with the Securities and Exchange Commission in 2018 because he tweeted that he had obtained funds to take Tesla private, but failed to do so.

He is currently being sued for securities fraud by Twitter shareholders because he failed to meet the legally required 10-day deadline to declare that his stake in the company had increased to 5%. By keeping that information hidden, he was able to continue buying shares without prices rising because of his interest, saving $143 million, according to the lawsuit.

The SEC is now looking into that, too, The Wall Street Journal reported Wednesday.

Current Twitter CEO Parag Agrawal was working to stabilize the ship on Friday and calm investor fears in the wake of Musk’s tweet. “While I look forward to the deal closing, we must be prepared for all scenarios and always do the right thing for Twitter,” he tweeted.

Musk could not be immediately reached for comment.

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