Since the beginning of the negotiations, we are aware of what the main issue with the Twitter deal is. As Elon Musk claims since the very beginning, Twitter fabricated the official number of fake accounts on the platform.
Until now, these accusations were not made official as they claimed over social media and newsletter articles only. However, now Elon took the matter more seriously and included it in an official lawsuit. Actually, a counter lawsuit, countering the one from Twitter as they attempt to force him to close the transaction and take over the company at the agreed price.
Elon Musk Accuses Twitter Of A Fraud – Deliberately Mispresenting Spam Users – Files A Countersuit
Twitter, as a social media company, makes about 90% of its money through advertisements shown on the platform. Advertisers are paying for particular users that have an interest in buying such a product to see the specialized ad. This way it is far more likely for the goods in the ad to sell. However, this is in fact not as it sounds. According to Musk, Twitter uses a “scheme to mislead investors about the company’s prospects.”
In the lawsuit, Musk claims that the company distorted the value of the company by misrepresenting the number of spam accounts. This lead him to accept to buy the company for the agreed $54.2 per share.
Musk’s team sent an official letter to the Securities and Exchange Commission. They state that “numerous, material misrepresentations or omissions that distort Twitter’s value and caused the Musk Parties to agree to acquire the company at an inflated price”.
“Twitter’s Complaint is full with personal attacks against Musk and gaudy rhetoric more directed at a media audience than this Court. This is nothing more than an attempt to distract from these misrepresentations.” – the letter continues.
The total number of Twitter accounts totals about 240 million users. Twitter constantly claims that this 5% of fake accounts are real.
Musk states that about 20% of the accounts on the platform are fake. This totals to about 65 million more users than claimed. According to the lawsuit, there are 65 million users less that will see the paid ad.
To clarify, under fake, or spam accounts Elon puts all accounts that are not operated by a human. Meaning they are working with a programmed algorithm. The purpose of these accounts is to manipulate users.
Musk dropped the deal back in July because this misrepresentation is a “company material adverse effect”, This additionally brings down Twitter’s value.
Twitter did not stay silent on this. They accuse Musk of telling “a story, imagined in an effort to escape a merger agreement. That Musk no longer found attractive once the stock market and along with it, his massive personal wealth, declined in value. The counterclaims are a made-for-litigation tale that is contradicted by the evidence and common sense.”
The lawsuit is about to start on October 17th in the Delaware courtroom. According to the Twitter lawsuit, Musk’s claims did damage the company already and will continue to do so until the end of the trial.
“Whether or not Musk’s claim is meritorious, and I don’t think it is, it has made things extraordinarily difficult for Twitter. Twitter finds itself in a kind of legal limbo, while the litigation continues and a trial awaits. It’s a huge distraction for the company. It puts the company’s strategy and direction into hiatus.” – Robert Frenchman, a representative of a New York law firm states.
