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

Elon Musk’s announcement that his deal to buy Twitter was “temporarily on hold,” driving down the stock prices — and value — of the company he signed a deal with raises concerns about potential securities fraud.

He insisted hours later that he “still committed to the acquisition

With his huge platform on Twitter, Musk can shake up the stock market in one sentence. His tweet Friday that his $44 billion pledge to buy Twitter was “temporarily on hold” because there may be more fake accounts and bots on Twitter than he realized caused Twitter shares to plummet by 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. Friday night, he said in a tweet that his “team” would conduct a study on 100 randomly chosen Twitter profiles to try and confirm they were authentic and asked other users to do the same.

But it was past due diligence under the terms of his deal.

“‘Temporary hold’ is nothing,” Bloomberg columnist Matt Levine wrote Friday. Elon Musk has signed a binding contract requiring him to buy Twitter. The contract “will not allow Musk to walk away if ‘spam/fake accounts’ are found to represent more than 5% of Twitter users,” the company revealed in its quarterly filings last month, Levine added.

When buying a company “You are not supposed to say things that are not true and that will affect the stock of a publicly traded company that you are trying to buy,” Levine noted. “That’s what’s commonly called ‘securities fraud’, or what I sometimes call ‘minor securities fraud’. Musk has a long history of light securities fraud.”

Musk settled a fraud case with the Securities and Exchange Commission in 2018 because he tweeted that he had gotten funding to take Tesla private but hadn’t.

He is currently being sued for securities fraud by Twitter shareholders for failing to meet the 10-day legal deadline to declare that his stake in the company had increased to 5%. By hiding that information, he was able to continue buying stock without a rise in prices caused by his interest, saving $143 million, according to the lawsuit.

The SEC is also investigating this, The Wall Street Journal reported on Wednesday.

Current Twitter CEO Parag Agrawal worked to stabilize the boat on Friday and calm investor fears in the wake of Musk’s tweet. “While I expect the deal to be closed, we must be prepared for all scenarios and always do what is right for Twitter,” he tweeted.

Musk was not immediately available for comment.

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