Judge JUST Ruled: Elon Musk JUST got SCREWED.

oh boy in the case of elon musk versus

twitter the judge just made a ruling and

i have to say this is not a good start

for elon musk this is something we've

definitely got to talk about so before i

talk about the ruling let me give you

some quick background and try to

summarize everything that's going on up

to this point so elon musk stated that

he would buy twitter for 54. and 20

cents which at the time represented

about 70 times earnings and in previous

videos i've stated boy oh boy paying 70

times earnings for a company a tech

company in 2022 doesn't seem like a

really good deal unless they're going

like crazy and twitter just isn't now

maybe the valuation made sense because

elon musk had this vision of turning

twitter into a company that could

potentially 4 5x not only its user base

but also its revenue potentially getting

up to a billion users unfortunately

these are just visions and i think when

the reality of recession hit elon musk

the reality of tesla share price falling

and his wealth plummeting over a hundred

billion dollars and having to lay people

off at a tesla hit well folks i think

then at that point elon started

realizing

crap maybe i did actually overpay for

twitter and here are some of the issues

that elon musk now faces he faces quite

a few and it all starts with his

original publicly disclosed merger

agreement this is really important so

let's make a list here so first

number one the public merger document

makes absolutely no mention of bots and

that means you really didn't have any

kind of contingencies for bots on the

twitter platform why do bots matter well

they matter because elon musk makes the

argument that hey

twitter told us in public filings that

only five percent of their user base

is made up of bots or spam accounts in

fact here is the direct verbiage from

the twitter filings with the sec

it states the following there are a

number of false or spam accounts in

existence on our platform we have

performed an internal review of a sample

of accounts and estimate that the

average of false or spam accounts during

the first quarter of 2022 represented

fewer than five percent of our monthly

daily active users during the quarter

the false or spam accounts for a period

represents the average of false or spam

accounts in the samples during each

month's analysis period during the

quarter now this is a very important

line right here that i want to highlight

to you first notice the word samples

right samples is very very important but

in addition to the word samples i want

you to remember this phrase right here

in making this determination we applied

quote

significant judgment in other words

significant sort of uh i think this is

right but it could be wrong right and

they even say so our estimation of false

or spam accounts may not accurately

represent the actual number of such

accounts and the actual number of false

or spam accounts could be higher than we

have estimated so it's a pretty good cya

statement cover your behind statement by

twitter's attorneys

and the reality is and i hate to say it

because you know what i like elon okay

but here's the thing the reality is

number two

elon musk didn't fact check the bot

issue before actually agreeing to sign

the merger deal so the public merger

document made no mention of bots he

didn't fact check the bot issue before

the deal was inc there was nothing in

the negotiations

that actually suggested that the bot

issue was a concern in fact number four

elon publicly said he wanted to solve

the bot issue as one of the reasons he

was buying the company and so this is

where twitter is making the argument

that ah as soon as elon musk's net worth

started falling and recession fears

started mounting elon musk decided oh

crap well now we've got some cold feet

now elon here is really saying look we

don't like how you did your sample in

fact we would do a sample completely

differently in fact when we survey

people on twitter and say things like

hey is your experience that only five

percent of users on the platform are

bots most people say no in fact some

suggest that the bots on twitter could

represent somewhere around 25 to 50

percent of the user base and so elon

here is saying hey y'all made a sample

but you all basically defrauded us by

doing a shot in the dark sample twitter

obviously replies here and says hey look

we said we used significant judgment and

even if that meant we just had one dude

in a dark room going uh hey uh you know

pick uh pick a hundred random tweets and

count how many spam bots and he goes uh

looks to be less than five percent all

right sounds good could be higher well

that's just the company you're buying

you're buying a company that didn't

actually have great controls and

unfortunately if you waived that due

diligence up front which elon argues

they didn't well then that's the problem

or ultimately the company that you have

to buy right see here's the thing i like

to compare this to real estate let's say

that you bought a house and you're in

escrow on a house and it's subject to

what's known as due diligence and you do

your home inspection you inspect the

sewer the electrical system the rule

foundation everything looks good you buy

the house and the day after you buy the

house you're like crap there's uh the

water heater burst because it was super

old and it only had one day left and

this has literally happened to home

buyers the day after you close boom the

water heater bursts and leaks everywhere

and floods out the property well if the

seller didn't know that the water heater

was about to burst technically that's

the buyer's problem even if the buyer

was still in there

in their escrow period but after they've

removed their due diligence agreement

buyer can't just cancel the deal because

all of a sudden the water heater is old

if they've removed their contingencies

now

if the seller knew and had a quote from

a plumber and a plumber came to that

house and said this water heater has

three days left on it and it's going to

blow and this happened during let's say

the buyer's contingency period and the

seller didn't disclose that well now

that could be a material fact and the

buyer could argue you should have

disclosed that to me and but then

even if you have what's known as a

material adverse effect in a contract

where something is now substantially

changing the deal because now it flooded

out let's say the property flooded out

you'd have to make the argument that

this water heater flooding out actually

damaged the house so significantly that

you can no longer buy the property and i

hate to say it but in a lot of cases for

homeowners the property floods out from

a water heater the insurance company

comes in and pays for new flooring in a

new kitchen or bathroom or whatever

wherever the leak damage was buyer ends

up in a better situation you don't

actually have a material adverse effect

so there are two things that you have to

take away because obviously there's no

insurance company here for twitter but

two things you have to take away from

that example in that real estate example

you have to take away that number one

the seller would actually have to be

going out of their way to defraud elon

musk if the seller defrauded elon musk

and the judge finds that the seller is

twitter is defrauding elon musk then

elon will win

if the judge determines that the

information twitter provided is their

best guess but they're not going out of

their way doing their own home

inspection to properly fill out their

disclosures because they're not going

and hiring a bunch of inspectors to try

to make it perfect for the buyer because

that's the buyer's job before they sign

away due diligence then you can't really

fault the seller for fraud and so this

is a massive uphill battle that elon

musk faces sellers aren't required to

make sure that their product is

perfectly inspected and that they even

know about all of their defects that's

on the buyer so it's really difficult to

imply that twitter knew that there was a

problem and they didn't tell elon if

elon can prove that elon will probably

win but he's got a big uphill battle

especially when you zoom into that

statement that twitter used significant

judgment and that could basically just

be one dude sitting in a dark room

personally that that one line there

changed my perspective of this because

originally i was kind of like elon musk

fanboying i have to admit it but when i

saw that i'm like crap i mean in theory

twitter could have called me and said

hey kevin we want you to consult and let

us know do a quick random sample of how

many bots you see on a daily basis and

if i call them back and go hey i mean i

think it's around five percent in theory

that is a sample it's not a good one

it's a lazy dumber sample right but it's

still a sample and it could be wrong in

fact it probably is wrong but that

doesn't make it fraudulent that doesn't

make it a material adverse effect so

this is where elon again big uphill

battle he'd probably have to show that

twitter knows they were lying that's

going to be tough

now judges and this is the other big

problem okay

judges in delaware the delaware chancery

courts these are business judges and

people file corporations in delaware i

have myself because delaware is known as

the place to incorporate for most

companies because these judges honor

business contracts judges want contracts

to be enforceable so that way when

companies decide where do we want to

incorporate they pick delaware to do it

it's kind of like this case is literally

an advertisement for incorporating in

delaware because it shows that we take

business contracts seriously in delaware

and we're not going to let some let's

say woke politics or you know super you

know whatever sided one-sided politics

get involved we're gonna look at

business contracts as what they are

business contracts so letting elon musk

potentially walk away from this deal

could really weaken the state's ability

to actually attract corporations to

trust their company and corporation

documents in the state of delaware so

the potential precedent of letting elon

walk away here would be huge and this is

yet another massive uphill battle for

elon musk and as much as i like to

fanboy for elon

i'm concerned here the more i look at

this the more concerned i get does it

mean he might have to sell tesla stock

we'll talk about that so what happened

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private live streams and much more but

folks what happened in delaware court

today with the judge who just got over

having coven well twitter argued that

this deal is not contingent upon bots

that this has literally nothing to do

with bots and instead that elon just

wants to walk away because the market

softened elon musk's team argues that

twitter gave elon the run around when it

came time to see the actual books and

the actual inspections and probably my

opinion this is because twitter doesn't

actually even know they don't even know

because they never even care to inspect

how many bots they had because quite

frankly you know the more monthly active

users they can say they have the better

it is for their share price that's not

necessarily fraud it's just a company

that doesn't care and so they don't know

so elon's team argues they just got

excuses and that they relied on this

public disclosure of five percent which

was really a kind of lame disclosure

because again you know probably

twitter's team probably just didn't

originally care and it wasn't their

obligation to make sure that that was

perfect so elon's got a weak like to

stand on here twitter in court says that

this is making opera this lawsuit is now

also making it difficult for them to

operate their business and attract

employees because they don't know is

elon going to be the new boss who's

going to be the new boss and so

employees are like what's going on like

do we stay do we go should i stay or

should i go you know that's crazy and so

the judge cited and this is where things

also get bad for elon okay the judge is

like look you know we have a precedent

in delaware of performance and we allow

sellers and buyers to seek performance

that is forcing the other party to do

something elon musk agreed to buy the

company we have a precedent here of

forcing people to buy companies or or

corporations or whatever to follow the

contracts that they sign

and this is bad for elon as well so we

got quite a few bad things here okay

right one we've got that significant

sort of that that statement right the

cya statement that's not good number

three which we're about to talk about is

the precedent that is not a good thing

but we've also got that significant

hurdle of the fact that twitter had no

obligation

no obligation at all to make sure that

statement was accurate on the behalf of

a buyer just like in that real estate

example again you go sell your house you

don't have to do a home inspection on

your house before you sell it could be a

good idea but it's not your problem it's

the buyer's problem so these are three

big problems but what's this precedent

one here well folks this is a big one

because oh when a judge brings up a

precedent it is so hard to get a judge

to flip on precedent it's almost like

getting a cop to write a ticket and then

trying to convince them to unwrite the

ticket really really hard and the judge

brought up the case of tyson

v-i-b-p this is a problem see back in

2001 tyson foods offered to put in a bid

for ibp foods which they did this would

have been a mutually beneficial

acquisition as both were within the top

three producers of chicken back in 2001.

tyson foods produces chicken okay now

you can spend hours reading the story

between these two however here's a brief

synopsis tyson outbid another company

smithfield 4 ibp the acquisition looked

like a done deal but then there was a

miscommunication between the executives

from both sides subsidiary companies had

unclear impairment charges in their

balance sheets and on their income

statements and the market started

crashing in the dot-com bubble explosion

the bursting of the dot-com bubble so

tyson's like let's use this as a

material adverse effect to back out of

the deal only a couple of months after

signing the deal

well folks what did the delaware judge

end up doing the delaware judge in 2001

said sorry tyson you have no legal

grounds for withdrawing your 3.2 billion

dollar deal and you have to go through

with it that again strengthens the case

for bringing deals to delaware which is

just another one of the issues that elon

faces so the disclosure is an issue the

fact that there was no mention of the

bot issues in negotiations earlier on

the fact that twitter is under no

obligation to actually investigate their

own crap even if they're bad company

they're under no obligation to prove

that they suck

because then they have to disclose it

right

and then

you have precedent of this tyson deal

and the fact that judges want to honor

the fact that delaware is a state that

when you sign a contract you fulfill

your contract and good luck getting a

judge to change their mind on that so

what ended up happening well

twitter was hoping to get a september

three-day trial so they wanted a

three-day trial in september to settle

this issue that's pretty soon that's

within 60 days and would be pretty rough

for elon musk to actually put together a

case to say that let's say 50 of users

or bots and that this is a scam and a

fraud of a company hard to make that

case it's also hard to do that within

three days as a result elon musk's team

said it would be fair to wait until

april of 2023 to which of course

twitter's like dude how are we supposed

to operate for another half year

basically or more than half of a year

just so you can go play with numbers

that's not fair

so what did the judge do the judge cited

substantially more with twitter and not

elon's team ended up going for an

october deal which you could see is

substantially closer to the twitter

target and they are going to set a five

day trial or five day trial has now been

set for the case between elon and

twitter this is gonna be big so if you

wanna see details of that case make sure

to follow and subscribe to this channel

now is elon musk potentially going to be

forced to sell tesla stock uh yeah

potentially because if some of his other

financing now falls through

it could potentially put pressure on

tesla as elon musk maybe needs to sell

up to another 11 billion dollars as it

seems like right now he has secured

roughly about 33 billion dollars we've

got a 44 billion dollar deal on the

table this is running off the chart over

here just like many things that's going

on with elon anyway 33 billion dollars

are tentatively secured right now he's

got to get to 44 billion that leaves a

deficit of 11 billion dollars if some of

this financing pulls out though it's

possible he could have to come up with

maybe 15 20 billion bucks could that

potentially create selling pressure

abso freaking literally could that end

up being a buying opportunity for tesla

absolutely freaking lutely is there a

good chance elon musk done f'd up here

abso freaking lutely thanks so much for

watching and we'll see in the next one