Fort Lauderdale litigator Jonathan Pollard is closely following the current dispute between Twitter and Elon Musk. As most folks know, Musk recently made an offer to purchase Twitter for $44 billion. After Twitter accepted that offer, the deal hit a snag when Musk demanded verification regarding the actual size of Twitter’s user base. In a recent SEC filing, Twitter represented that approximately 5% or less of its monetizable active daily user base is fake. But many people surmise that the percentage is actually much higher. Pollard offers the following take:
Pollard’s Take: Twitter is in Trouble
No, Elon Musk DID NOT deflate the share price of Twitter! The share price of Twitter was INFLATED to begin with because nearly 20% of all Twitter accounts are fake, spam, or bots.
How does Musk not have a 10b5 securities fraud claim against Twitter? Suppose Twitter did not make any representations about the legitimacy of its user base.
Ok, let’s just run with that. How did Twitter not have a duty to disclose that nearly 20% of its claimed user base is fake? That is highly material from a valuation standpoint.
And why didn’t Musk sue first? Why did he sit back and wait for Twitter shareholders to sue?
This is basically Twitter shareholders getting angry that the curtain got lifted on a long-running fraud that is a central part of their business. Think about the ramifications. How many advertisers now have claims against Twitter for inflating the size of its network and the reach of its advertisements?
It gets even stickier than that. Twitter has users, generally. But then there are ACTIVE DAILY USERS. If nearly 20% of ALL Twitter users are fake/spam/bots, then what percentage of Twitter’s supposedly active daily users are fake? It’s probably higher than 20%. Because spam accounts and bots are probably pretty active– they’re just set on autopilot. Why is that important?
Because: When you’re selling advertising, total users is less important than active daily users. Random users who go on a platform once a month are basically meaningless. The most important metric is active daily users. That’s the heart of your advertising audience.
So the question: What percentage of Twitter’s claimed active daily users are fake? Is it 20? Is it 30? Is it even more?
Buckle up. This one is going to get wild.
About Jonathan Pollard
Although Pollard focuses his legal practice on non-compete and trade secret litigation, he has significant experience in high-stakes securities litigation. Pollard began his career at Boies, Schiller & Flexner, where he spent three years representing investors who lost billions of dollars with the Madoff feeder funds. Based out of Fort Lauderdale, Pollard PLLC represents clients in a wide range of complex litigation. Their office can be reached at 954-332-2380.