Carney: Why the Bot Count Matters to Elon Musk and Twitter Shareholders 

For the sake of argument, let’s say that Twitter is wrong and that the real number of fake accounts is higher. If the undercount is just a few percentage points, so that the real figure is seven percent, it’s probably not a big deal. What would be a big deal is if bots make up one-third or even half of Twitter’s daily active users.

The legal liabilities that would be associated with underestimating bots on that scale would be enormous. There would be suits from advertisers claiming they had been misled about how many genuine human beings were seeing their accounts. Shareholders would sue saying they had purchased shares at prices pushed artificially high by Twitter’s misstatements. Bondholders could sue alleging that they had been misled. Regulators such as the Securities and Exchange Commission and the Federal Trade Commission might bring lawsuits. Even users might be able to successfully sue Twitter by showing they had expended time and money to grow their reach on the website based on how the idea that they were reaching real people and not a “readership” made up of thirty-percent spam bots.

So why is Musk worried? After all, he was not the one running Twitter at the time of potential misstatements. But he would inherit the liabilities for Twitter’s misdeed by acquiring the company. More precisely, the liabilities would still be Twitter’s liabilities after the acquisition. If the damage awards were high enough, Elon would wind up paying tens of billions for a company that would then get handed over to its creditors in a bankruptcy trial or dissolved entirely.

It would make sense if some of those extending credit or equity for the deal pointed this out to Musk. The banks that have said they will provide credit for the buyout may be concerned about the potential liability. Some of the equity partners may also. No one wants to extend funds into a potential black hole of legal liability.