Elon Musk’s lawyers on Wednesday appealed in a federal appeals court to throw out a provision in his 2018 consent decree with the US Securities and Exchange Commission (SEC) requiring a Tesla Inc lawyer to vet some of his posts on Twitter.
In a brief filed with the 2nd U.S. Circuit Court of Appeals in Manhattan, lawyers for Musk called the pre-approval mandate a “government-imposed muzzle” that restricts his freedom of speech on a broad range of topics.
Musk’s lawyers also said that the mandate provision violates the U.S constitution of free speech and open debate. SEC is expected to file its brief with the appeals court.
In April, U.S. District Judge Lewis Liman in New York rejected Musk’s bid to throw out the settlement that he signed with the SEC.
The decree resolved a lawsuit accusing Musk of defrauding investors with an Aug. 7, 2018 tweet that he had “funding secured” to take his electric car company private, though a buyout was not close. Musk has said the tweet was truthful.
As a result, Musk agreed to let a Tesla lawyer screen tweets that might contain material information about the company. He and Tesla each also paid $20 million in civil fines, and Musk gave up his role as Tesla chairman.
On Nov 6, 2021, Musk made a tweet asking whether he should sell 10% of his Tesla stake to cover tax bills on stock options, on which SEC later opened a probe and subpoenaed documents concerning Musk’s and Tesla’s compliance.
“Under the shadow of the consent decree, the SEC has increasingly surveilled, policed, and attempted to curb Mr. Musk’s protected speech that does not touch upon the federal securities laws,” the lawyers wrote. “Any objective served by the pre-approval provision has been served.”
Musk, the world’s richest person according to Forbes magazine, is trying to buy Twitter Inc for $44 billion.
Musk is separately trying to abandon his April agreement to buy Twitter for $44 billion, saying the company misled him by downplaying the number of fake accounts.
Twitter has sued Musk to force him to complete the merger at the agreed-upon price, which is 23% higher than where its shares closed on Tuesday. An Oct. 17 nonjury trial is scheduled in Delaware Chancery Court.
What you should know about Delaware Chancery Court Case
On Thursday, April 14th, Elon Musk announced an offer to buy Twitter for $54.20 a share. On April 25th, Twitter’s board of directors accepted Musk’s offer of $54.20 per share, or $44 billion, for total control of the company. It was the same price he named in his initial offer on April 14th. Upon completion of the transaction, Twitter will become a private company. By July 8th, Musk wanted out. Then Twitter sued Musk. And now we’re headed for Chancery Court in Delaware for a five-day trial in October that will determine who owns Twitter — and what happens after.
The start of the Deal:
In his opening salvo, Musk claimed his bid to buy Twitter was exactly that. He was offering Twitter’s shareholders a pretty fair premium: $43 billion for a company with a $37 billion market cap.
Musk said that Twitter must go private to undergo the changes that need to be made. These included an edit feature, an open-source algorithm, less moderation, and a higher bar for removing offending tweets.
After news broke that Musk had acquired 9.1 percent of the company’s shares, many people briefly entertained the notion that Musk might try to buy the whole company, only to eventually conclude he had already gotten everything he wanted out of Twitter.
After declining a seat on Twitter’s board, Musk updated his filing with the Securities and Exchange Commission to indicate that he would not be a passive player in the company’s affairs.
Musk plan to get out of the deal:
Almost as soon as Musk made clear his intentions to get out of buying Twitter, Twitter filed a lawsuit that said, in effect: you agreed to pay $44 billion for Twitter, and we intend to get all $44 billion for our shareholders. Twitter filed its suit in the Delaware Court of Chancery.
In a legal filing, Musk’s legal team claimed that Twitter failed to provide Musk with information on the service’s spam bot problem and that he’s entitled to receive that information under the deal agreement.
Twitter CEO Parag Agrawal fired top executives and froze hiring
The turmoil inside Twitter wasn’t just coming from Musk and his legal team. Parag Agrawal, the still-new CEO of the company, fired some of his top executives, including consumer product leader Kayvon Beykpour and Bruce Falck, the general manager of revenue and head of product for its business side. “The priorities and decisions we make now will not only bolster how we navigate through this time,” Agrawal said in a memo to Twitter’s staff, “but also for the longer-term success of Twitter which I care about deeply.”
Twitter’s former security chief comes into the Picture/says the company lied about bots and safety
Peter “Mudge” Zatko was fired in early 2022 from his position as Twitter’s head of security. In July, he filed a whistleblower report saying Twitter has hidden negligent security practices, misled federal regulators about its safety, and failed to properly estimate the number of bots on its platform. Zatko is a long-tenured and well-respected voice in the hacker and security community, and his allegations are sure to have a huge impact on and out of Twitter. Congress, for one, has already said it is investigating Zatko’s claims.
Zatko’s disclosure says directly that Twitter lied to Musk about its spam and bot measurements, which could be fodder for Musk’s complaints about spambots, though Zatko’s support for those particular allegations feels fairly thin.
Twitter CEO, Parag Agrawal address his staff on August 23:
In the letter, Agrawal repeats Twitter’s public statement by claiming Zatko was fired earlier this year for “ineffective leadership and poor performance.” As far as his accusations, the CEO claims the company is looking over what has been published but that what they’ve seen is “a false narrative that is riddled with inconsistencies and inaccuracies, and presented without important context.”
Musk tried to use Zatko allegations on Twitter:
Elon Musk says the disclosures of Twitter’s former security chief have given him new justifications to walk away from his $44 billion deal to buy the social media platform.
Musk’s lawyers filed a new “Termination Letter” with the SEC on August 29th, which cites the testimony of Twitter whistleblower Peiter “Mudge” Zatko as evidence that Twitter misled Musk in the parties’ merger agreement. Specifically, Musk claims that Twitter’s declaration in the merger agreement that it had not misled the SEC is false, citing Zatko’s allegations. In Zatko’s complaints, which were published, he claimed that Twitter repeatedly and knowingly misled regulators about the security of its platform.
Musk’s legal time tried to buy time:
Musk’s side wanted more time for the trial to start in February 2023. Twitter wanted it to start as soon as possible. Chancellor McCormick, who will oversee the trial, said the trial will start on October 17th and will last five days. Of course, that assumes the two sides don’t settle, and that remains anyone’s guess.
Twitter blamed Elon Musk for making it lose money:
it reported earnings in July, the company said its revenue fell for a variety of macroeconomic reasons but also because of what it described as “uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk.” One thing Twitter won’t give Musk credit for? Its user growth. The service reported reaching more than 237 million daily users, up from 229 million last quarter. That, of course, was due to “ongoing product improvements.”
Musk’s lawyers have now sent three letters to Twitter attempting to terminate his agreement to buy the company. This time, they cited Twitter’s multimillion-dollar severance payment to Zatko, saying it was a violation of the merger agreement and a reason to end the deal.
A few days later, Twitter responded the way it always does: your argument is invalid, Twitter hasn’t breached its side of the deal, and so you can’t either.
Current scenario per se hearing:
In early September, Delaware Chancellor Kathaleen McCormick said that Musk’s side can include Zatko’s claims in its case but denied yet another effort to delay the trial. “I am convinced that even four weeks’ delay would risk further harm to Twitter too great to justify,” McCormick said. And as we continue to learn more about the brain drain happening at Twitter, it seems she might be right.
On Monday, Tesla CEO Elon Musk won a reprieve from questioning by Twitter lawyers, according to several press reports. The billionaire had been scheduled to give a deposition in his high-stakes court fight with Twitter over whether he has to follow through with his agreement to buy the social platform for $44 billion.
Twitter CEO Parag Agrawal, who was also scheduled to face Musk lawyers on Monday, likewise postponed his deposition.
Elon Musk and Parag Agrawal were expected to answer questions posed by opposing lawyers ahead of an October trial that will determine who is at fault for the seeming collapse of Musk’s Twitter bid, not to mention who owes whom large sums of money as a result. The trial is set to begin on October 17 in Delaware Chancery Court, where it’s scheduled to last just five days.