If Tesla CEO Elon Musk’s legal team can demonstrate that Twitter misled its users by failing to disclose the actual number of bots or spam accounts on its platform, the Parag Agrawal-led company could be held liable for fraudulent disclosure in its filing with the US Securities and Exchange Commission (SEC). And Musk agrees.
A follower wrote to Musk in a tweet that, according to SEC Rule 10b-5, Twitter “can be liable for omissions of or misleading material facts. Waiving due diligence does not mean you have to accept a fraudulent disclosure (understated bots)”.
Musk replied: “Exactly”.
Plaintiffs (including the SEC) must demonstrate manipulation or deception (via misrepresentation and/or omission) among other rules in order to establish a claim under Rule 10b-5.
The Tesla CEO cancelled the $44 billion Twitter takeover because he did not believe Agrawal’s claims about the actual number of bots on the platform.
When Musk threatened to cancel the $44 billion Twitter acquisition, the microblogging platform revealed that it suspends over 1 million spam accounts every day.
The one million figure includes accounts that are filtered out as they try to join the platform and are thus never counted as daily users.
The new figure was a doubling of the previous update.
Agrawal stated in May that spam account suspensions were at 500,000 per day.
Since 2014, Twitter has stated in its quarterly results that it believes its spam account problem accounts for less than 5% of its daily active users, a figure Musk never believed.
There are just under 230 million daily active users on the microblogging platform.
The Musk-Twitter feud has now reached the courtroom, with a US district judge ordering that the trial begin in October.
The trial will last five days, which is longer than Twitter requested but shorter than Musk requested. The exact dates have yet to be determined.
According to a recent report, Musk intends to sue a microblogging site in order to cancel the deal.