June 21, 2024


The Joy of Technology

Elon Musk’s Twitter countersuit: Tesla CEO makes case against company



SAN FRANCISCO — Elon Musk’s countersuit to Twitter contains aggressive new claims about the social media site’s methods for tallying bot and spam accounts — as well as which accounts generate ad revenue — cementing the strategy the billionaire is using to attempt to back out of the deal.

In his countersuit against the social media site, obtained by The Washington Post, Musk accuses Twitter of misleading his team, and by extension Wall Street, about its true advertising base, constituting a reason for him to back out of his agreement to purchase the site for $44 billion. Musk, who is the CEO of electric car company Tesla, argues that as he learned more about the process Twitter employed to determine the authenticity of accounts, he grew increasingly concerned to the point that he could no longer execute the deal.

Speaking at Tesla’s annual shareholder meeting on Thursday, Musk refrained from commenting specifically on the lawsuit but reiterated his interest in helming Twitter or a company like it.

“I do understand the product quite well so I think I’ve got a good sense of where to point the engineering team with Twitter to make it radically better,” said the world’s richest man, who frequently tweets his thoughts to his more than 100 million followers. “I think it’s something that will be very useful to the world.”

But Musk’s countersuit makes clear he wants out of the deal he struck to buy the site in April. In his countersuit, the tech mogul alleges fraud, breach of contract and violation of the Texas Securities Act.

Musk attorneys argue that while Twitter touts having 238 million monetizable daily active users, the proportion that actually see ads is 65 million lower. Further, they argue, the majority of ads are shown only to fewer than 16 million users, which is less than 7 percent of the number of users Twitter claims can earn the company revenue by seeing ads.

Musk is seeking a declaration that his purported revelations about the extent of spam and bots permeating the service constitute a material adverse effect, a significant change affecting the underlying value of the business that would render it far less valuable and let him back out of the deal, according to the document.

What happens next in Twitter’s lawsuit against Elon Musk?

“Twitter played a months-long game of hide-and-seek to attempt to run out the clock before the Musk Parties could discern the truth about these representations, which they needed to close,” the countersuit alleged. “The more Twitter evaded even simple inquiries, the more the Musk Parties grew to suspect that Twitter had misled them.”

Musk also pleads for unspecified damages in the countersuit.

Twitter on Thursday filed a series of rebuttals to the countersuit — the latest in weeks of bitter legal wrangling — which preempted Musk’s filing. Twitter argued that Musk was cherry-picking numbers and misrepresenting how its online ad system works.

For example, the company said that Musk’s “preliminary expert estimates” that Twitter’s actual spam and bot numbers are at least double what the social network claimed are derived from faulty data. The company said that Musk’s team relied on a public internet application called the “Botometer” — which applies different standards to calculating bots than Twitter does and “which earlier this year designated Musk himself as highly likely to be a bot,” the legal document said.

“The allegations … are Musk’s attempt to distort data received from Twitter to sponsor wild conclusions about Twitter’s mDAU, reflecting his apparent and inappropriate effort to use this litigation to undermine Twitter’s business,” it said.

Twitter board chairman Bret Taylor also took aim at Musk’s allegations Thursday.

“His claims are factually inaccurate, legally insufficient, and commercially irrelevant,” he wrote in a tweet. “We look forward to the trial in the Delaware Court of Chancery.”

Musk’s claims in his countersuit — and Twitter’s rebuttals — go further than before in the escalating legal dispute. But they also largely repeat Musk’s concerns over what he claims are misrepresentations about the degree to which spam and bots pervade Twitter’s platform and negatively impact people’s use of the service.

Twitter is probing Elon Musk’s social circle in broad legal requests

On April 8, according to the countersuit, Musk texted Twitter CEO Parag Agrawal about the prevalence of scam tweets on the site, sending a screenshot of apparent spam.

“I am so sick of stuff like this,” he wrote, according to a copy of the text exchange in the suit.

“We should be catching this,” the Twitter CEO replied.

Musk answered, “Yeah.”

Musk and Twitter are locked in a court battle over his bid to buy the site for $44 billion, the price the tech mogul agreed to on April 25 before announcing he was terminating the deal on July 8.

Twitter sued Musk on July 12 in an effort to force the merger to go through, arguing Musk violated his commitment to buy the company.

A trial in the matter is set for the week of Oct. 17 and is set to last five days. Twitter has issued a flurry of subpoenas to banks and associates of Musk in an effort to uncover information related to the deal.

Twitter sues Elon Musk, setting stage for epic legal battle

Musk’s attorneys fought for his answer to be posted earlier, but Twitter urged the judge to delay its release citing the need for redactions.

Before the termination letter, Musk spent weeks expressing his concern over the proportion of spam or fake accounts on the website, telegraphing an argument he would use as a potential off-ramp. His apprehension coincided with economic pressures across the tech industry, and a decline in Tesla’s stock value that significantly cut into his net worth.

Twitter has said for years that spam and bot accounts make up fewer than 5 percent of its MDAU, the company’s count of daily active users who are eligible to see ads. The number of daily active users is 238 million, according to the documents posted Thursday.

Thursday’s filing capped off a week of tense legal back-and-forth, with Musk’s team arguing to unseal the countersuit immediately and Twitter pressing a judge for more time for redactions and saying that Musk’s side was breaking the court’s rules.

Both sides also issued a flurry of wide-ranging subpoenas to financial parties involved in the deal but also to members of Musk’s social circle, including an investor who spoke at an event in Miami where Musk discussed the bot issue.

Why Elon Musk can’t get out of Twitter deal, even if his lenders bail

Subpoenas went out from Twitter’s side to banks Credit Suisse and Morgan Stanley, as well as to Musk associates, including investors Joe Lonsdale and David Sacks, according to Twitter posts from both men. Both are not known to be investors in Twitter. Twitter also subpoenaed Musk’s legal team.

Musk’s side has issued fewer subpoenas so far, but appears to have issued subpoenas to two third-party companies that contract with Twitter. Both companies are known to hire content moderators for Twitter.

In his countersuit, Musk called Twitter process for tallying bot and spam accounts “shockingly thin,” referring to a daily 100 account sample Twitter uses to estimate the prevalence of spam on the site. The response claimed sampled accounts were subject to the “reviewer’s gut judgment” and said the process was devoid of automation or artificial intelligence.

Twitter fired back in its response.

Twitter “deploys an array of spam-detection capabilities that typically result in the removal of more than a million spam accounts each day during or shortly after creation, including both automated and manual reviews of accounts and activity on the Twitter platform,” according to its filing.

The Washington Post previously reported on the automated removal of over a million accounts daily.


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