Billionaire could be fined $1bn for walking away – and he risks new lawsuits and even his job, experts says.
Elon Musk withdrew his $44bn bid to buy Twitter on Friday after a months-long saga that rankled investors and shook the market, kicking off what may be a long legal battle with the company.
The Twitter chair, Bret Taylor, said on Friday that the social media firm would sue in a Delaware court to enforce the deal. The deal included a “specific performance” clause, a provision that may force Musk to buy the company as long as he has financing in place. Musk in May said he had secured financing to complete the deal.
Musk may also face a fine of $1bn to walk away, a penalty he is seeking to evade by accusing Twitter of a “breach of multiple provisions” of the agreement, according to a letter filed with the Securities and Exchange Commission announcing the dissolution of the offer.
“For nearly two months, Mr Musk has sought the data and information necessary to ‘make an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform’,” Musk’s team stated in the letter. “Twitter has failed or refused to provide this information.”
The data in question centers on the number of spam accounts on the app, which Twitter has claimed make up about 5% of more than 200m users but Musk believes is higher. Analysts have speculated that the bot issue is being purposely overstated by the executive.
“What Musk and his team are doing is trying to come up with an excuse so that he doesn’t have to pay the penalty fees to walk away,” said Anat Beck, a professor, and business law expert at Case Western Reserve University.
In addition to the fine for the failed deal, Musk could face serious consequences from the SEC for his antics, which have had major impacts on the several public companies he manages as well as Twitter itself.
Musk is an executive at the artificial intelligence firm Neuralink, the electric car company Tesla, the space travel company SpaceX, and the tunnel construction firm the Boring Company. He has in the past faced lawsuits from investors over his erratic behavior and its effects on the companies’ stocks.
In May, Twitter investors filed a class-action lawsuit against Musk for failing to disclose his growing investment in the company, costing them millions in value. That lawsuit is ongoing. He has also faced additional legal ramifications over his tweets after a 2018 post in which he claimed to be taking the company private, a move that knocked $14bn off of Tesla’s value.
The market-moving 2018 tweet resulted in a $40m fine from the SEC, as well as an agreement that Musk would step down as chairman of the Tesla board.
Fines against Musk, who with a $224bn net worth is now the richest man in the world, have had negligible impacts, said Beck, but the executive could face further action from the SEC – including being removed as CEO from one or more of the companies he helms.
“The fine will be painful for Musk, but what would be more painful is if the SEC used its power to say ‘you are not fit to run the companies you are running and someone else should be appointed as CEO’,” Beck said.
Musk’s waffling on the Twitter decision has led many to call for legislation that prevents such market chaos in the future or enforcement from bodies outside the SEC. Meanwhile, Musk and Twitter could be battling in court for some time, and Musk will face additional class action lawsuits, Beck said.
“Investors in any company that has been impacted by this can bring forth a lawsuit,” she said. “The question is: do we have fraud? Do we have a billionaire that is doing this purposely to impact the markets? That is legally what needs to be answered.”
We have a small favor to ask. Millions are turning to the Guardian for open, independent, quality news every day, and readers in 180 countries around the world now support us financially.
We believe everyone deserves access to information that’s grounded in science and truth, and analysis rooted in authority and integrity. That’s why we made a different choice: to keep our reporting open for all readers, regardless of where they live or what they can afford to pay. This means more people can be better informed, united, and inspired to take meaningful action.
In these perilous times, a truth-seeking global news organization like the Guardian is essential. We have no shareholders or billionaire owners, meaning our journalism is free from commercial and political influence – this makes us different. When it’s never been more important, our independence allows us to fearlessly investigate, challenge and expose those in power.
