Twitter massive fraud? NO!

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The situation is that the richest person in the world, Elon Musk, has $44 billion riding on the question of whether Twitter Inc. is doing a massive long-running fraud on its users, its advertisers and its shareholders. Musk has claimed that it is, with no evidence at all, just a vague feeling that he has. If he’s right and there is a massive fraud, then he can get out of his agreement to buy Twitter for about $44 billion. If he’s wrong, he has to buy Twitter. 

This situation is extremely well known. There are incentives. If you have something to do with Twitter, or you know something about Twitter, or you are in the business of counting Twitter bots, then you should take a few minutes and ask yourself: Well, do I know anything about Twitter doing any massive frauds? If you do … look, I don’t know exactly what you can do with that. I am not at all sure that you can actually go to Elon Musk and be like “hey I’ve got a pile of fraud documents, they’re yours for $1 billion.” (He could send you a subpoena and get them for free?) Even if you did strike a deal with him, he’s notoriously bad about sticking to his deals. Still. I just have a vague general sense that saving the richest person in the world $44 billion is a good career move. 

So you should expect that, over the next month or two, as Musk’s trial date with Twitter approaches, people will be popping up to say “oh sure Twitter is a fraud, massive fraud, totally, I have proof, Elon, call me.” Possibly some of them will have proof that Twitter is doing massive fraud! You never know.

Anyway here’s a guy:

Twitter executives deceived federal regulators and the company’s own board of directors about “extreme, egregious deficiencies” in its defenses against hackers, as well as its meager efforts to fight spam, according to an explosive whistleblower complaint from its former security chief.

The complaint from former head of security Peiter Zatko, a widely admired hacker known as “Mudge,” depicts Twitter as a chaotic and rudderless company beset by infighting, unable to properly protect its 238 million daily users including government agencies, heads of state and other influential public figures. …

“Security and privacy have long been top companywide priorities at Twitter,” said Twitter spokeswoman Rebecca Hahn. She said that Zatko’s allegations appeared to be “riddled with inaccuracies” and that Zatko “now appears to be opportunistically seeking to inflict harm on Twitter, its customers, and its shareholders.” Hahn said that Twitter fired Zatko after 15 months “for poor performance and leadership.” …

A person familiar with Zatko’s tenure said the company investigated Zatko’s security claims during his time there and concluded they were sensationalistic and without merit.

The Washington Post article quoted above includes a copy of Zatko’s redacted complaint. “Please note,” says a footnote, “that Mudge began preparing these disclosures in early March 2022, well before Mr. Musk expressed any interest in acquiring Twitter, and has not communicated these disclosures to anyone with a financial interest in Twitter.”

And, to be clear, Zatko’s complaint doesn’t agree with Musk’s. The narrow issue in the Musk/Twitter dispute is whether Twitter has been lying in its securities filings when it says that it estimates that fewer than 5% of its “monetizable daily active users” are spam or bot accounts. And Zatko is pretty unambiguous that, no, Twitter’s numbers are correct. His lawyers write:

Executives are incentivized to avoid counting spam bots as mDAU, because mDAU is reported to advertisers, and advertisers use it to calculate the effectiveness of ads. If mDAU includes spam bots that do not click through ads to buy products, then advertisers conclude the ads are less effective, and might shift their ad spending away from Twitter to other platforms with higher perceived effectiveness.

However, there are many millions of active accounts that are not considered “mDAU,” either because they are spam bots, or because Twitter does not believe it can monetize them. These millions of non-mDAU accounts are part of the median user’s experience on the platform.

Musk’s claim is that Twitter counts spam bots in its mDAU numbers. Zatko’s complaint says, no, obviously Twitter doesn’t do that — that’s just a thing that Musk made up to get out of the deal — but the spam bots exist and are annoying. Twitter does a good job of excluding them from its count of monetizable users, he says, but not of getting rid of them entirely. That’s not fraud; it’s just a thing that annoys Zatko (and Musk). 

The rest of the complaint is mostly like that too. The gist of it is that, when he worked there, Zatko felt like Twitter was disorganized and incompetent, and because Twitter is a really important platform with lots of users, that’s bad. “Mudge Discovers Egregious Deficiencies, Negligence, Willful Ignorance, and Threats to National Security & Democracy” is one representative section header. Basically “Twitter was bad at running a website.” Which I think a lot of people already believed?

But if you believe Zatko’s claims, you could spin some legal arguments from them. (Ann Lipton has a good Twitter thread analyzing what Zatko’s claims could mean for Musk.) If Twitter was bad at safeguarding user data, did that violate the law (including in particular its 2011 settlement with the Federal Trade Commission over user data)? Were Twitter’s securities filings misleading, because they didn’t disclose all of its security vulnerabilities? When all this stuff comes out, will that cause a “material adverse effect” on Twitter’s business, which will let Musk get out of the deal? Meh, I don’t know. 

Even if these claims are true, and even if they are evidence of fraud or material adverse effect, they are not evidence of anything that Musk has been complaining about. Musk would have to, like, send Twitter a new termination letter saying “never mind about the bot stuff, now I’m terminating the deal because of the security vulnerability stuff.” But he could do that, why not. He’s not limited to the excuses he’s already tried; if people keep finding him new excuses to get out of the deal, he can try those too. Maybe one will work.