Elon Musk Believed To Make Twitter’s Shares Aground Due To Bots And Spam Accounts

Bots and spam accounts on Twitter need disclosure.(photo; doc.pixabay)

JAKARTA - Elon Musk may find a way to substantiate his claim that account spam on Twitter Inc's platform is significantly higher than the social media company thought. This proves that the Tesla CEO and investors will be hard-pressed to be fooled by claims from Twitter.

Musk tweeted on Tuesday, May 17 that a $44 billion deal to acquire Twitter could not proceed until the company shows evidence to support its estimate that spam accounts on Twitter account for less than 5% of its user base. He said he believes the number is at least four times greater than Twitter CEO Parag Agrawal claims and he will "beat the bot or die trying it."

While independent researchers have projected that 9% to 15% of the millions of Twitter profiles may be bots.

Twitter itself has said in its regulatory filings that it applies "significant judgment" in generating estimates and has warned that its disclosures may not accurately represent the true number of spam accounts it contains.

It is this disclaimer that provides Twitter with protection against potential lawsuits, either from Musk over the deal or shareholders over the accuracy of the company's regulatory statements, four securities law experts told Reuters.

Even if Twitter's estimates were off the mark, plaintiffs would have to show that the San Francisco-based company was trying to knowingly mislead investors. This is a claim that is difficult to prove in court.

According to experts, the Securities and Exchange Commission (SEC), the US regulator that oversees the disclosure of public companies, would have difficulty doing so for the same reason.

"It will be difficult to establish grounds for either an SEC enforcement case or shareholder action unless it can be demonstrated that Twitter knowingly or recklessly ignored information that would suggest its spam estimates were misleading," said Moses & Singer partner law firm Howard Fisher.

A Twitter spokesperson said the company's board plans to finalize the deal with Musk at an agreed price and enforce the merger agreement. Musk's representatives did not respond to requests for comment on the report.

Another legal hurdle for Musk was his decision to waive due diligence when he negotiated the Twitter deal. Legal experts say this makes it harder for Musk to argue in court that Twitter misled him.

To be sure, Musk may be able to walk away or renegotiate the deal at a lower price even if the law is on Twitter's side. This is because any litigation will likely drag on.

Twitter may decide it makes more sense to agree to a lower price or accept the $1 billion (IDR 14.5 trillion) breakup costs Musk has to pay for not finalizing the deal, rather than trying to force him to complete the transaction in court.

As a result of this lack of understanding, Twitter shares ended at 38.32 US dollars per share, on Tuesday, May 17. This is a nearly 30% discount off Musk's deal price of $54.20 per share. It also indicates that the market considers the possibility that the deal will either be completed at a lower price or be abandoned.

According to experts, to meet legal standards that show Twitter has misled investors over spam accounts, and evidence that the company acted in bad faith is now urgently needed. This can be an internal document such as an email or testimony from the complainant.

"This failure must rise to a level of willful ignorance, not mere negligence," Georgetown University Law School professor Urska Velikonja told Reuters.

The problem of fake accounts and spam is important to Twitter's business. The company's stock fell in 2018 after automated account cleanups and spam pushed monthly active users down to 1 million, when analysts forecast a gain of 1 million users.

Robert Frenchman, a partner specializing in white-collar crimes at law firm Mukasey Frenchman, said it is possible that the SEC will eventually review the issue of disclosing Twitter spam accounts given the public attention it has attracted. But he added he did not expect Twitter to face a significant legal threat.

"I don't see it as something that might fall into the category of materially misleading and I believe the language was designed with care and with a methodology that might not be easy but it makes sense," Frenchman said.