Monday, September 26, 2022

The Twitter Whistleblower Plays Right Into Elon Musk’s Hands

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“This throws gasoline into the fire around the bot issue with Musk and Twitter,” says Dan Ives, managing director and senior equity analyst at Wedbush Securities. “For the Musk camp this story is like a kid looking under the tree on Christmas morning.”

The allegations are also serious enough that Ives believes they would be a major focus for politicians looking into social media malpractice, and they are likely to lead to investigations.

“If what Zatko alleges is true, Twitter has violated its users’ trust and deceived the Federal Trade Commission and its directors,” says Christopher Bouzy of Bot Sentinel, whose access to Twitter data was threatened with removal this week. As for the timing of that warning, which would restrict Bouzy from collecting data about deactivated and suspended accounts that had not been an issue for the previous four years, “I do not think it’s a coincidence,” Bouzy says. Twitter spokesperson Lindsay McCallum-Rémy says that the account referenced “was given a warning for violating our Developer Policy,” which was the result of a routine review.

Whether the allegations are true or not is the key question. McCallum-Rémy says that Zatko was fired from his job in January 2022 “for ineffective leadership and poor performance.” Addressing the allegations, McCallum-Rémy says, “What we’ve seen so far is a false narrative about Twitter and our privacy and data security practices that is riddled with inconsistencies and inaccuracies and lacks important context. Mr Zatko’s allegations and opportunistic timing appear designed to capture attention and inflict harm on Twitter, its customers, and its shareholders. Security and privacy have long been company-wide priorities at Twitter and will continue to be.”

The fact that such claims have surfaced now shouldn’t be a huge surprise, no matter how significant the bombshell seems. “Allegations of concealment are a very common grounding for a fraud claim,” says Adam C. Pritchard, a professor of law at the University of Michigan specializing in corporate and securities law. “In this situation it gives Musk an opening to argue that even with due diligence, he wouldn’t have uncovered the issue.”

The circumstances around the revelations play into Musk’s hands, believes Pritchard. “That makes it easier for him to argue that it is a material adverse change rather than a topic he waived when he waived due diligence,” he says. “As always, it is all about negotiating leverage, and this gives Musk a bit more leverage.”

For Bouzy, it appears clear-cut. “I believe Elon Musk will use this latest revelation in court to prove Twitter executives misled him,” he says. “I am not a lawyer, but I don’t see a scenario where the court forces Musk to buy Twitter if the allegations are true.”

Paul Fisher, who teaches negotiation at Oxford University’s Saïd Business School, also isn’t a lawyer. But he thinks the takeover is now a done deal—and not in the way Twitter wants. “I think it could well give Musk the way out he wants,” he says. “In any negotiation, particularly when it concerns the sale or purchase of an asset, transparency and getting all material information that might affect price onto the table is essential. In many cases, if the buyer determines that such representations were untrue at the time of the deal, the buyer may be entitled to terminate the agreement or certainly seek significant compensation from the seller.”

McCallum-Rémy declined to comment on how the revelations would affect the Musk takeover court case, or how Twitter intended to respond.

“I think Twitter is just going to stick to their guns,” says Dhar. “But they’ve got to start showing some evidence they were trying to do something about it, and the deal was in good faith.”

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