Elon Musk’s Twitter ‘Hold’ deal sparks securities fraud concerns

Elon Musk’s announcement that his deal to buy Twitter was ‘temporarily on hold’, driving down the stock price – and value – of the company he bought, raises concerns of possible fraud in securities.

He insisted hours later that he was “always engaged in the acquisition.”

With his huge platform on Twitter, Musk can shake up the stock market with a single sentence. His tweet on Friday that his $44 billion pledge to buy Twitter was “temporarily suspended” because there may be more fake accounts and bots on Twitter than he thought caused Twitter shares to plummet by as much as 25%.

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

But it was high time to do some due diligence under the terms of his deal.

“‘Temporarily on hold’ is not a thing,” Bloomberg columnist Matt Levine wrote on Friday. “Elon Musk has signed a contract requiring him to buy Twitter.” The contract “does not allow Musk to walk away if ‘spam/fake accounts’ are found to account for more than 5% of Twitter users,” the company revealed in its quarterly filings last month, Levine added.

When buying a company, “you’re not supposed to say things that aren’t true that will affect the stock of a public company you’re trying to buy,” Levine noted. “This is commonly referred to as ‘securities fraud’, or what I sometimes like to call ‘petty securities fraud’. Musk has a long history of petty securities fraud.

Musk settled a fraud lawsuit with the Securities and Exchange Commission in 2018 because he tweeted that he got funding to take Tesla private but didn’t.

He is currently being sued for securities fraud by Twitter shareholders because he exceeded the legally required deadline by 10 days to declare that his stake in the company had increased to 5%. By keeping this information hidden, he was able to continue buying stocks without his interest-triggered price hike, saving $143 million, according to the lawsuit.

The SEC is also looking into this matter, The Wall Street Journal reported on Wednesday.

Current Twitter CEO Parag Agrawal was trying to steady the boat on Friday and ease investor fears following Musk’s tweet. “While I expect the deal to be done, we need to be prepared for all scenarios and always do what’s right for Twitter,” he tweeted.

Musk could not immediately be reached for comment.


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