How Elon Musk Could Use Twitter Whistleblower Report – Vophs

Elon Musk is doing everything he can to get out of his $44 billion deal to buy Twitter. While he still faces long odds to get out of a binding merger deal, a new whistleblower report from Twitter’s former security chief could help bolster Musk’s case in court.

The Washington Post and CNN reported that Peter Zatko, better known as “Mudge” in hacking circles. Whistleblower complaint (pdf) with the US Securities and Exchange Commission (SEC) against Twitter, alleging that the company misled investors about its security practices and data about its user base.

Zatko’s complaint is unrelated to the lawsuits between Musk and Twitter, but the document will no doubt play a role now. Musk’s lawyer, Alex Spiro, said in a statement that his team had already presented Zatko. “Hamnedhnod liya [Zatko’s] Exit and other key employees are curious in light of what we’re looking for,” Spiro said.

What does a whistleblower complaint allege?

Zitko’s wide-ranging complaint makes numerous allegations about Twitter’s mismanagement and, in many cases, alleges that Twitter executives knowingly misled investors, board members, and the U.S. government. Misled? Among other things, Zitko alleged:

  • Twitter CEO Parag Agarwal asked Zatco not to take his concerns about Twitter’s security and user data to Twitter’s board of directors.
  • Agarwal forced him to send false and misleading information about Twitter’s security to the board.
  • Agarwal mocked Musk when he said Twitter was incentivized to accurately detect bots and spam accounts on the platform.
  • Twitter misused user data in breach of a 2011 Consent Decree with the US Federal Trade Commission (FTC);
  • Twitter admitted that roughly half of its employees had access to extensive controls over sensitive systems and, perhaps most strangely,
  • The Indian government forced Twitter to hire one of its agents.

In a statement, a Twitter spokesperson pushed back against Zatko’s allegations:

Mr. Zatko was fired from his senior executive role at Twitter in January 2022 due to ineffective leadership and poor performance. What we’ve seen so far is a false narrative about Twitter and our privacy and data security practices that is full of inconsistencies and misunderstandings and lacks important context. Mr. Zatko’s allegations and opportunistic timing are designed to garner attention and harm Twitter, its users and its shareholders. Security and privacy have long been and will continue to be company-wide priorities at Twitter.

What does a whistleblower complaint say about Twitter’s user data?

Musk has claimed without evidence that Twitter lied to him and government regulators about its user data. While Zatko’s claims are perfectly consistent with Musk’s allegation, the former Twitter security chief also doesn’t back up his claims with evidence that Twitter mishandled its user data.

Indeed, at various points in the complaint, Zatko asserts that Twitter’s monetizable daily active users (mDAU) — the user base metric at the heart of Musk’s controversy — is “more or less the best estimate of the set of Twitter accounts that are not There are bots.”

He also said that Twitter is “doing a decent job of excluding spambots and other useless accounts based on MDAU”, while he believes the number of non-human accounts is “significantly lower than 5%”. is more”. But in public filings, Twitter has routinely warned that the percentage of spam in its MDAU count — 237.8 million users as of the most recent fiscal quarter — could exceed 5%.

“Meaning Whistleblower Claims [about] Bots are only likely to have an impact on the Musk/Twitter case if they have factual substance,” David Lowry, a securities attorney in New York, told Vophs. “On initial assessment, it doesn’t seem like there’s much. “

Does the Whistleblower Report Help Elon Musk?

Despite the lack of hard evidence, Zatko’s complaint could open new doors for Musk’s lawyers after the trial begins on Oct. 17.

Not only did Musk sign a deal to buy Twitter for $44 billion, he signed a specific performance clause, meaning a judge could do more than just force Musk to pay civil damages. : She could force Musk to complete the takeover. For Musk to get out of the deal, he would likely have to demonstrate that a Material adverse change has occurred. This would mean that some new information, not known at the time of the deal, has come to light, seriously jeopardizing Musk’s ability to keep Twitter moving forward. This is a very high legal standard to meet.

Ann Lipton, a professor at Tulane University School of Law, said the whistleblower’s complaint gives Musk “more ammunition for a long-shot claim of fraud.” Still, Musk will have to show that Twitter executives willfully ignored real material risks to the company. “I’m not a tech person so it’s hard to gauge how strong the claims are but as a lawyer, it’s easy to read it as just an employee disagreeing with management’s decision,” he said. said

Boston College Law School professor Brian Quinn told Vophs that new revelations about system security and data privacy flaws could be a potential “lottery ticket.” While Quinn acknowledged that Musk never discussed security risks as a reason for wanting to get out of the deal, if the allegations are true and Musk “can provide evidence that That the board hasn’t adequately disclosed its security vulnerabilities then Musk has something to play with in court.”

Adam Pritchard, a professor at the University of Michigan Law School, agreed. “Allegations of concealment are a very common basis for a fraud claim,” Pritchard wrote in an email to Vophs. “In this situation, it gives Musk an opportunity to argue that even with due diligence, he wouldn’t have uncovered the issue. It makes it easier for him to argue that it’s the subject matter.” There is a material negative change instead of what he resigned to when he resigned. As always, it’s all about negotiating leverage, and that gives Musk a little more leverage.”

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