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Spokane, Washington  Est. May 19, 1883

Musk’s countersuit contains aggressive new claims, and Twitter rebuts them

Elon Musk, chairman and chief executive officer of Tesla Motors Inc., speaks during a news conference on Sept. 29, 2015.   (Bloomberg )
By Faiz Siddiqui and Elizabeth Dwoskin Washington Post

SAN FRANCISCO – Elon Musk’s countersuit to Twitter contains explosive new claims about the social media site’s methods for tallying bot and spam accounts, and shows the billionaire is trying to use the issue to back out of the deal, according to the document obtained by the Washington Post.

In their countersuit, Musk attorneys argue that while Twitter touts having 238 million monetizable daily active users, the proportion who actually see ads is 65 million below that figure. Further, they argue, the majority of ads are shown to fewer than 16 million users.

Musk is seeking a declaration that Twitter suffered a material adverse effect because of its spam and bot claims, a significant change affecting the underlying value of the business that would let him back out of the deal, according to the filing.

Twitter on Thursday published several rebuttals to the countersuit filed by Musk regarding his abandoned $44 billion bid to acquire the beleaguered social media company.

Twitter’s filing – the latest in weeks of bitter legal wrangling – preempted the publication of Musk’s countersuit.

And it revealed that in his sealed countersuit filed last week, Musk claimed that Twitter actively misled his legal team, lied in its quarterly disclosures to financial regulators and does a poor job of vetting for spam and bots on its service.

The countersuit includes claims of fraud, breach of contract and violation of Texas securities law, according to the document posted by Twitter.

Musk’s claims in his countersuit – and Twitter’s rebuttals – go further than before in the escalating legal dispute.

But they also largely repeat Musk’s concerns over what he claims are misrepresentations about the degree to which spam and bots pervade Twitter’s platform and negatively impact people’s use of the service.

Musk and Twitter are locked in a court battle over his bid to buy the site for $44 billion, the price the tech mogul agreed to on April 25 before announcing he was terminating the deal on July 8.

Twitter sued Musk on July 12 in an effort to force the merger to go through, arguing Musk violated his commitment to buy it.

A trial in the matter is set for the week of Oct. 17 and is set to last five days.

Twitter has issued a flurry of subpoenas to banks and associates of Musk in an effort to uncover information related to the deal.

Musk’s attorneys fought for his answer to be posted earlier, but Twitter urged the judge to delay its release citing the need for redactions.

Before the termination letter, Musk spent weeks expressing his concern over the proportion of spam or fake accounts on the website, telegraphing an argument he would use as a potential off-ramp.

His apprehension coincided with economic pressures across the tech industry, and a decline in Tesla’s stock value that significantly cut into his net worth.

Twitter has said for years that spam and bot accounts make up fewer than 5% of its MDAU, the company’s count of daily active users who are eligible to see ads.

The current number of daily active users is 229 million.

Thursday’s filing capped off a week of tense legal back-and-forth, with Musk’s team arguing to unseal the countersuit immediately and Twitter pressing a judge for more time for redactions and saying that Musk’s side was breaking the court’s rules.

Both sides also issued a flurry of wide-ranging subpoenas to financial parties involved in the deal but also to members of Musk’s social circle, including an investor who spoke at an event in Miami where Musk discussed the bot issue.

Subpoenas went out from Twitter’s side to banks Credit Suisse and Morgan Stanley, as well as to Musk associates, including investors Joe Lonsdale and David Sacks, according to Twitter posts from both men.

Both are not known to be investors in Twitter. Twitter also subpoenaed Musk’s legal team.

Musk’s side has issued fewer subpoenas so far, but appears to have issued subpoenas to two third party companies that contract with Twitter.

Both companies are known to hire content moderators for Twitter.