Elon Musk shook the world when he shared his plans to acquire Twitter, and he did it again weeks later when he backed out of the deal. However, what’s most bewildering is why: bot disclosure. What was set up to be one of the most infamous company purchases of this decade came to a crashing halt over Twitter’s refusal to disclose their spam account statistics. Now, Twitter is suing the Tesla CEO in hopes of forcing him to hand over the $44 billion and follow through on the agreement.
The $44 billion deal was terminated last week due to an ongoing disagreement regarding the amount of spam Twitter accounts. People operate these fake profiles, or they are AI automated; regardless, they do a fantastic job of imitating how regular users interact on the platform. They follow, unfollow, share, retweet, tweet, reply, and like, just like everyone else. So why is this an issue?
According to the cybersecurity firm Imperva Research, Bots composed more than 40% of global website traffic in 2021. Some are malicious; others aren’t. When such an account is identified, Twitter has to decide if it’s good, and keep it, or if it’s bad, in which case it’s taken down. The ill-intended ones can manipulate algorithms, share dangerous links, spread fake news, promote propaganda, and steal user data – and they tend to be more challenging to identify due to how well they mimic human behavior.
However, if bad bots are both inevitable and hard to fight, why are they the reason Musk jumped ship? His lawyers claim the social media network was “refusing Mr. Musk’s data requests” by disclosing fake account statistics. They argue this is a “clear material breach” of the agreement, providing Mr. Musk the right to walk away. In an attempt to salvage the situation, Twitter offered the billionaire access to the “fire hose,” or “the daily stream of millions of tweets that flow through the company’s network.” He also took issue with Twitter’s inability to “proceed with the ordinary course of business by conducting layoffs.” Twitter’s efforts to resolve the problem fell short; now, this is heading to the court system.
Elon Musk has been a long-standing critic of Twitter’s efficiency in combatting spam accounts. The social media company claims that only 5% of its users are bots and that it removes one million fakes daily. Supposed absent transparency from Twitter appears to have forced Musk to back out. Yet, backing away from the deal isn’t that easy.
After Elon dropped some tweets and memes, Twitter filed a lawsuit against him, attempting to hold him to the $44 billion contract. Musk responded on Twitter with, “Oh the irony lol.” What’s so funny? The bot disclosure Twitter allegedly withheld from him will now have to be publicized with this suit, according to Mr. Musk.
The lawsuit states, “In April 2022, Elon Musk entered into a binding merger agreement with Twitter, promising to use his best efforts to get the deal done. Now less than three months later, Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests.” Legal experts predict this will end up a lengthy trial, which will either result in forcing Musk to follow through or pay the $1 billion breakup fee as he walks away.
Some analysts suggest Musk is using the lack of bot disclosure as a cop-out. The $44 billion may be “overpriced” based on the state of the stock market. Tesla stocks would primarily finance the deal, which has suffered over the last few weeks. Simultaneously, the valuation of Twitter has wavered and dropped. This entire engagement over the previous few months has been nothing short of original and non-typical.
Calling out the SEC
Elon and the Securities Exchange Commission (SEC) don’t have the best relationship. Yet now he is asking for their help. He tweeted at the SEC and called for an investigation into Twitter’s financial disclosures regarding the ratio of human to bot users. If the group explores the situation and finds that Twitter lied or misrepresented their numbers, the company may face serious consequences, making Elon the least of their problems.
Whether the SEC jumps in or not, this legal battle will be long and costly. Former SEC Chairman Jay Clayton hesitated to speculate too much on potential SEC activity and the suit’s future, but he said with confidence that the legal teams acquired are “the best money can buy.” He explained that it’s too early to tell how this plays out, but he suggested that Musk and Twitter may settle as the facts come to light. Clayton also shared that “we have rules around communications with the market, in times like this, and I think you’re going to see some regulatory scrutiny here around that type of communication” concerning Musk’s tweets and memes about this lawsuit. Elon ran into issues with the SEC and his social media activity in the past, and Clayton’s comments indicate we may see that again.