Texas AG launches investigation into Twitter for misleading Texans on the number of ‘bot’ users


Texas Attorney General Ken Paxton announced on Monday that he is launching an investigation into Twitter for potentially misleading Texans on the number of ‘bot’ users.

He made the announcement in a post on the social media site Monday afternoon, writing: ‘I have a duty to protect Texans if Twitter is misrepresenting how many accounts are fake to drive up their revenue.’

So-called bots are automated accounts that send tweets, follow users and like and retweet others’ posts, but are not associated with any single real-life user. 

Twitter executives claimed in Securities and Exchange Commission filings that bots represent fewer than 5 percent of its accounts in the first quarter of 2022.

But several people, including Tesla CEO Elon Musk, suspect that Twitter could be artificially inflating the value of the company, by undercounting the percentage of bots on the platform.

Paxton issued a Civil Investigative Demand to determine whether the social media giant’s reporting on fake users is ‘false, misleading or deceptive under Texas Deceptive Trade Practices Act.’

As part of the CID, Paxton is requesting documents ‘describing and substantiating’ the methodology it used to calculate that ‘fewer than 5 percent’ of ‘false or spam accounts’ are included in its ‘monetizable daily activity users’ metric as well as any documents contradicting those statements.

Twitter now has until June 27 to respond to the demand, Paxton said, as its shares continued to trend downward Monday after Tesla CEO Elon Musk threatened to walk away from an agreed-upon $44billion takeover of the company. 

‘Texans rely on Twitter’s public statements that nearly all its users are real people,’ he said in a statement. ‘It matters not only for regular Twitter users, but also Texas businesses and advertisers who use Twitter for their livelihoods.

‘If Twitter is misrepresenting how many accounts are fake to drive up their revenue, I have a duty to protect Texans,’ he added. 

Texas Attorney General Ken Paxton announced he is launching an investigation into Twitter for potentially misleading Texans on the number of ‘bot’ users

Texas Attorney General Ken Paxton announced he is launching an investigation into Twitter for potentially misleading Texans on the number of 'bot' users

Ironically, the Texas AG made the announcement in a tweet Monday afternoon

Paxton has launched a Civil Investigative Demand, requesting Twitter turn over all documents that substantiate Twitter's reporting that only 5 percent of its users are fake accounts - as well as any documents or public statements that contradict that report

Paxton has launched a Civil Investigative Demand, requesting Twitter turn over all documents that substantiate Twitter’s reporting that only 5 percent of its users are fake accounts – as well as any documents or public statements that contradict that report

Paxton’s filing puts creates further pressure on the social media giant to be transparent about its number of fake accounts after Musk said he would walk away from his takeover of the company if it does not provide more information about them.

Musk claimed spam bots could make up at least half of Twitter’s users, which is more than 10 times the company’s official estimate. 

In a letter to Vijaya Gadde, Twitter’s Chief Legal Officer, dated Monday, Musk’s attorney argued the terms of the billionaire’s purchase agreement requires the platform to provide the requested data, which he has allegedly repeatedly asked for since May 9.

He also disputed the company’s alleged claim that it is only required to provide information for the ‘limited purpose’ of closing the deal. 

‘Musk is entitled to seek, and Twitter is obligated to provide, information and data for, inter alia, ‘any reasonable business purpose related to the consummation of the transaction,” the letter stated. 

‘Musk believes Twitter is transparently refusing to comply with its obligations under the merger agreement, which is causing further suspicion that the company is withholding the requested data due to concern for what Musk’s own analysis of that data will uncover.’

He stated that if Twitter is ‘confident’ in its published spam estimates, he ‘does not understand’ the company’s reluctance to allow him to ‘independently evaluate those estimates.’

‘As Twitter’s prospective owner, Musk is clearly entitled to the requested data to enable him to prepare for transitioning Twitter’s business to his ownership and to facilitate his transaction financing. To do both, he must have a complete and accurate understanding of the very core of Twitter’s business model—its active user base,’ the letter stated.

‘In any event, Musk is not required to explain his rationale for requesting the data, nor submit to the new conditions the company has attempted to impose on his contractual right to the requested data.’

The company quickly hit back at his letter, saying it plans to enforce the buyout at the ‘agreed upon price and terms’ and will provide the billionaire with the necessary information to secure the deal’s success.

‘We believe this agreement is in the best interest of all shareholders,’ a company spokesperson said in a statement Monday.

‘We intend to close the transaction and enforce the merger agreement at the agreed upon price and terms.’

Company executives later said they planned they planned to ‘consummate the transaction’ with the billionaire, and said they would ‘cooperatively share information’ about the number of bots on its site. 

Paxton's announcement comes after Tesla CEO Elon Musk (pictured) threatened to pull out of his agreed-upon $44million takeover of the social media giant if it is not transparent about the number of fake users it has

In a letter to Vijaya Gadde (pictured) on Monday, Musk stated if Twitter is 'confident' in its published spam estimates, he 'does not understand' the company's reluctancy to allow him to 'independently evaluate those estimates'

Paxton’s announcement comes after Tesla CEO Elon Musk sent a letter to Vijaya Gadde, Twitter’s Chief Legal Officer threatening to pull out of his agreed-upon $44million takeover of the social media giant if it is not transparent about the number of fake users it has

Musk's attorney argued the terms of the billionaire's purchase agreement requires the platform to provide the data, which he has allegedly repeatedly asked for since May 9

Musk’s attorney argued the terms of the billionaire’s purchase agreement requires the platform to provide the data, which he has allegedly repeatedly asked for since May 9

But Monday’s filing is not the first time the billionaire has threatened to tank the deal over its reported use of fake accounts.

He tweeted last month he ‘cannot move forward’ with the purchase until he is provided the requested data.

Musk said at the time he wanted to pause on the purchase deal to verify false or spam accounts represented fewer than 5 percent of the company’s 229 million users during the first quarter, as Twitter reported.

If Twitter’s reporting was accurate, that would mean that there are fewer than 11.4 million fake accounts that are targeted for ads. 

The billionaire said he and his team wanted to conduct their own audit of 100 Twitter followers to check how many are bots and spam accounts. 

In fact, the bot problem appears to be a longtime fixation for Musk, one of Twitter’s most active celebrity users, whose name and likeness are often mimicked by fake accounts promoting cryptocurrency scams. 

The billionaire appears to think such bots are also a problem for most other Twitter users, as well as advertisers who take out ads on the platform based on how many real people they expect to reach. 

However, some analysts speculate Musk is actually seeking the spam data in an effort to negotiate a lower price for the deal or pull out completely. 

The Twitter sale agreement allows Musk to get out of the deal if there is a ‘material adverse effect’ caused by the company. It defines that as a change that negatively affects Twitter’s business or financial conditions. 

Financial experts claim Musk can’t unilaterally place the deal on hold, although that hasn’t stopped him from acting as though he can. 

If he walks away from the merger agreement, Musk could be on the hook for a $1 billion breakup fee.

Though Twitter’s board agreed to the purchase in April, it still has not been approved by shareholders, and is not expected to close for at least several months.

The bot problem has been a longtime fixation for Musk, one of Twitter's most active celebrity users, whose name and likeness are often mimicked by fake accounts promoting cryptocurrency scams

The bot problem has been a longtime fixation for Musk, one of Twitter’s most active celebrity users, whose name and likeness are often mimicked by fake accounts promoting cryptocurrency scams

In fact, late last month, a proposed class-action suit was filed against Musk and Twitter over the Tesla CEO’s acquisition of the platform. The suit alleges Musk violated multiple California corporate laws and engaged in stock market manipulation. 

The suit claims Musk benefited financially by delaying to disclose his stake in the platform and by ‘temporarily concealing’ his initial plan to become a board member. Musk ultimately declined the offered board seat. 

The complaint, which was obtained by CNBC, also states Musk bought Twitter shares while knowing insider information about the company based on private conversations with board members and executives.

Musk revealed his stake in Twitter on April 4 and 10 days later proposed his $44 billion buyout. He has sold a significant chunk of his Tesla shares in an effort to secure funding for the deal. 

Since his acquisition bid, both Tesla and Twitter stock prices have been on the decline. In wake of Monday’s letter, Twitter saw more than 4 percent drop, to $38.42 per share, during morning trading.

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