Suppose Twitter committed a prior fraud that could affect Elon’s decision, such as claiming fake
bots to be only 5% while it’s much higher, would that be a legitimate cause for withdraw?
Good question. One can speculate!
If there is true fraud, that’s a criminal issue for the prosecutors, so leave that aside for the moment.
Would it matter for enforcing a contract? Let the speculating begin.
Twitter does have a lot of verbiage in their financial reports that makes it clear that the reported bot numbers are (I paraphrase) just estimates which they can’t guarantee.
The purchaser of a company is presumed to have read these financial reports.
Highlighting mine:
"The numbers of mDAU presented in this Annual Report on Form 10-K are based on internal company data.
While these numbers are based on what we believe to be reasonable estimates for the applicable
period of measurement, there are inherent challenges in measuring usage and engagement across our
large number of total accounts around the world. Furthermore, our metrics may be impacted by our
information quality efforts, which are our overall efforts to reduce malicious activity on the
service, inclusive of spam, malicious automation, and fake accounts. For example, there are a number
of false or spam accounts in existence on our platform. We have performed an internal review of a
sample of accounts and estimate that the average of false or spam accounts during the fourth quarter
of 2021 represented fewer than 5% of our mDAU during the quarter. The false or spam accounts for a
period represents the average of false or spam accounts in the samples during each monthly analysis
period during the quarter. In making this determination, we applied significant judgment, so
our estimation of false or spam accounts may not accurately represent the actual number of such
accounts, and the actual number of false or spam accounts could be higher than we have estimated.
We are continually seeking to improve our ability to estimate the total number of spam accounts and
eliminate them from the calculation of our mDAU, and have made improvements in our spam detection
capabilities that have resulted in the suspension of a large number of spam, malicious automation,
and fake accounts. We intend to continue to make such improvements. After we determine an account
is spam, malicious automation, or fake, we stop counting it in our mDAU, or other related metrics."
I would expect it to be pretty hard to nail a fraud case in light of that disclaimer.
The mere fact of the sampling process being of poor quality or missing a whole lot of fakes would seem not to be enough.
I imagine it would also take the executives (a) knowingly and (b) materially falsifying the results of their internal sampling.
If juniors reported to the bosses that 25% were fake and the bosses then publicly reported that 5% were fake, that would be a gun giving off some smoke.
So, seeking to cancel the deal would (I continue to speculate) involve multiple steps–
- Demonstrating that there are more bots than reported
- Demonstrating that this has a truly material effect on the value of the company
- Demonstrating that the bosses knew this and publicly stated otherwise
- Demonstrating that the purchaser relied on these specific public statements in deciding to enter the agreement.
The last one doesn’t sound too tough, but the first three could be hard.
For example, the mere fact that (say) 1/4 of accounts were fake does not change what the company’s income has been.
You would have to demonstrate that the “botness” of the business, once known, would also cause advertisers to pay less.
Not that unreasonable an assumption, but it’s one more step in a pretty long road.
Personally I don’t see any way the whole chain could succeed, but we’ll see.
Jim
