Texas AG Launches Investigation Into Twitter; Alleges Company Humiliated About Number Of Bots

Paxton’s office offers issued a Civil Investigative Demand

Update (1530ET):   Texas Attorney Common Ken Paxton on Monday announced  an investigation against Twitter  to determine whether they’re lying down about the number of fake robot accounts on the platform.

According to Paxton’s office, “ bots” or spam accounts “ fill followers and reach, and sometimes push deceptive and irritating activity, ”   Fox News   reports.

A large number of bot accounts not only reduces users’ experience on the system,   but could also inflate the value of the company and the costs of doing business by it, thus directly harming customers and businesses – particularly, Texas consumers and businesses, ” according to the report.

Paxton said the difference between Twitter’s claims that less than 5% of users are bots versus his projections of possibly 20%,   “ would significantly affect the cost of Texas customers and businesses transacting with Twitter. ”  

Paxton’s office has issued a Civil Investigative Demand (CID) to investigate whether Twitter’s confirming on real versus bogus users is “ fake, misleading, or deceptive” underneath the Texas Deceptive Trade Practices Act. Per the need, Twitter would be compelled to turn over documents on how it calculates and manages consumer data and how that details relates to advertising. -Fox Information

“ Texans rely on Twitter’s public statements that nearly all its users are real individuals. It matters not only for regular Twitter users, but also Texas businesses and marketers who use Twitter for their livelihoods, ” said Paxton. “ If Twitter is certainly misrepresenting how many accounts are usually fake to drive up their own revenue, I have a duty to protect Texans. ”

Twitter has until June 27 to reply.

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Update (1200ET):   In an emailed statement in order to Bloomberg,   Twitter  said it “ provides and will continue to cooperatively reveal information with Mr. Musk to consummate the transaction   in accordance with the particular terms of the merger agreement. ”

The company said it believes the deal is in the best interest of all shareholders and  intends in order to “ close the transaction and enforce the merger agreement at the agreed cost and terms. ”

TWTR stocks have recovered some of the initial knee-jerk losses…

Elon Musk  said in an amended 13D filing that he believes  Twitter  is breaching their own merger agreement by not really providing information about spam and fake accounts.

Musk said he  believes Twitter is “ actively resisting and thwarting his information rights”   by refusing to reveal the information.

Remember,   we had earlier highlighted   Musk’s ongoing battle with Twitter where, in its last stage at the end of May, Musk  seemed to recommend his buyout offer might be compromised as a result of the number of robots on the platform.  

The dispute escalated May  right after Musk tweeted a  Reuters   content in which Twitter estimated that will fake accounts comprise less than 5% of users, that Musk said:

“ Twitter deal temporarily on hold pending details helping calculation that spam/fake accounts do indeed represent lower than 5% of users, ”   then additional:

“ Still committed to buy. ”

The new 13D submitting sparked an immediate 7% hammering in TWTR stock prior to the bell…

Read the larger letter below: (emphasis ours)

Dear Ms. Gadde:

We are within receipt of correspondence sent on Twitter’s behalf dated June 1, 2022, addressing Mr. Musk’s request for the data and information described in my letters dated May twenty five, 2022 and May 31, 2022.

Mr. Musk does not agree with the characterizations in Twitter’s June one letter.   Tweets has, in fact , refused to provide the information that Mr. Musk has repeatedly requested given that May 9, 2022 to facilitate his evaluation of spam and fake balances on the company’s platform.   Twitter’s latest offer to simply provide additional details regarding the company’s own assessment methodologies, whether through created materials or verbal explanations, is tantamount to declining Mr. Musk’s data demands. Twitter’s effort to characterize it otherwise is merely an attempt to obfuscate and mistake the issue.   Mister. Musk has made it apparent that he does not believe the company’s lax testing methodologies are usually adequate so he should conduct his own analysis.   The data he has requested is necessary to do so.

As noted, under various terms of the merger agreement, Twitter is required to provide data and information that Mister. Musk requests in connection with the consummation of the transaction. Twitter’s obligations to provide Mr. Musk with information is not, since the company’s June 1 letter suggests, limited to a “ very specific purpose: facilitating the closing of the transaction. ” To the contrary, Mister. Musk is entitled to look for, and   Twitter is obligated to provide, information and data for, inter alia, “ any affordable business purpose related to the consummation of the transaction”   (Section 6. 4). Twitter must also provide sensible cooperation in connection with Mr. Musk’s efforts to secure the debt financing necessary to consummate the deal, including by providing information “ reasonably requested” by Mr. Musk (Section 6. 11). Mr. Musk’s requests pertaining to user data not only fulfills both criteria, but also meets even Twitter’s narrowed meaning of the merger agreement, as this information is necessary to assist in the closing of the transaction.

As Twitter’s prospective proprietor, Mr. Musk is obviously entitled to the requested information to enable him to prepare regarding transitioning Twitter’s business in order to his ownership and to facilitate his transaction financing.   To do both, he or she must have a complete and precise understanding of the very core associated with Twitter’s business model— its active user base. In any event, Mr. Musk is not necessary to explain his rationale regarding requesting the data, nor send to the new conditions the organization has attempted to impose in the contractual right to the requested data. At this point, Mr. Musk believes Twitter is transparently refusing to comply with the obligations under the merger contract, which is causing further mistrust that the company is withholding the requested data due to concern for what Mr. Musk’s own analysis of that data will uncover.

If Tweets is confident in its published spam estimates, Mr. Musk does not understand the company’s unwillingness to allow Mr. Musk to independently evaluate those estimates.   As mentioned in our previous correspondence, Mr. Musk will of course comply with the restrictions provided below Section 6. 4, including by ensuring that anyone reviewing the data is bound with a non-disclosure agreement, and Mister. Musk will not retain or otherwise use any competitively sensitive information if the transaction is not really consummated.

Depending on Twitter’s behavior to date, and the company’s latest correspondence particularly,   Mr. Musk believes the company is actively resisting and thwarting his information rights (and the company’s corresponding obligations) under the merger agreement. This is a clear material breach of Twitter’s responsibilities under the merger agreement   and Mr. Musk reserves all rights resulting therefrom, including his right not to consummate the deal and his right to terminate the particular merger agreement.

Juts more negotiation? What is the next step? Twitter sues Musk, in a Wa DC court, and assess rules ‘ fair value’ for Twitter is $250 per share?

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