Elon Musk’s legal rumble with Twitter in court is still due in October, and initially it seemed Twitter had the upper hand. But now Twitter’s former head of security has turned whistleblower, after filing a scathing complaint with the Securities and Exchange Commission (SEC).
The filing is very comprehensive as obtained by CNN, spanning over 200 pages, and has grave allegations of misleading the Federal Trade Commission, ignoring fake accounts, and indiscriminate access to user data among other things. This could finally be the smoking gun Elon Musk was looking for.
Starting with a bit of backstory, in May this year, Elon Musk entered into an agreement to buy Twitter for $44 billion. The deal ultimately fell through, but Twitter decided to take Elon Musk to court. Turns out, as per the purchase agreement Elon Musk was liable to pay the company $1 billion, in case he terminated the deal.
We even covered this in a story, here, and also pointed out that it was very difficult to prove the actual number of fake accounts and bots in a platform, which was the basis of Musk’s legal argument against the company.
But now new allegations against Twitter have to light, from its own former head of security, the legendary Peiter “Mudge” Zatko. Zatko was fired from the company in January this year, for what the company claims were due to performance related reasons. But Peiter alleges that it was primarily because of his attempt to flag the glaring security lapses to Twitter’s board.
Zatko’s complaint to the SEC talks about many issues, but we will specifically look at the part related to the fake or spam accounts count. Elon Musk while backing out of the deal contended that Twitter’s count of monetizable daily active users, or mDAUs is not great way to account for spam or bot activity on the platform, and that it affects his ability to optimally monetize the platform after buying it.
But Zatko told CNN he thinks there would still be value in attempting to measure the total number of spam, false or otherwise potentially harmful automated accounts on the platform. “The executive team, the board, the shareholders and the users all deserve an honest answer as to what it is that they are consuming as far as data and information and content [on the platform … At least from my point of view, I want to invest in a company where I know what’s actually going on because I want to invest strategically in the long-term value of an organization,” he said.
Zatko claimed in his disclosures that Twitter’s reporting of bots as a percentage of total mDAUs is deliberately misleading, and that it should be taken as a percentage of total number of accounts on the platform. He also alleges that he started asking about the amount of bot and spam activity on Twitter as early as 2021. But was later informed by Twitter’s head of site integrity, that the company didn’t really know about the exact number on bots on the platform.
This was in part because, Zatko alleges, the company had no real appetite to properly measure the prevalence of bots, and also because the real number would potentially harm the company’s value and image.
Elon Musk however wasn’t convinced and maintained that the actual count of spam and bot accounts was much higher, as much as 20 percent which is 4 times higher than the stated number on Twitter’s SEC filings. Eventually Musk put the deal on hold, and later terminated the deal, with his lawyers stating “Twitter is in material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement, and is likely to suffer a Company Material Adverse Effect,”
– Our previous story on the saga
Zatko’s revelations could have an affect on the upcoming court battle between Elon Musk and Twitter, but it’s hard say anything at this point. As for Musk, he has yet to react on the recent revelations, but his legal team has already taken note, with his lawyer Alex Spiro stating, “We have already issued a subpoena for Mr. Zatko, and we found his exit and that of other key employees curious in light of what we have been finding.”