Twitter is a mess – but in Elon Musk’s lawsuit, it may not matter

In a fight between rich technicians who like to go fast and break things, there is not always a “good” side. This was underscored on Tuesday when former Twitter security chief Peiter “Mudge” Zatko accused the company of hiding a slew of risky behavior – and in doing so put himself in the middle of the battle. legal Twitter with Elon Musk. The report isn’t great for Twitter, but you’re probably already asking yourself the obvious question: is it bad for Twitter? in the courtroom?

The best answer I’ve found is: probably, yes. But on the sophisticated scale of the threat matrix disclosed on Twitter, the company’s chances are more “altered” than “physically destroyed”…with a healthy dose of “known unknown we really should know.”

A screenshot of the

The Twitter Threat Matrix.

We (and others) have described Musk’s case as very weak, but with the caveat that Musk may have some sort of undisclosed damning evidence. Now he has a more clearly dangerous weapon. Zatko is not a weirdo – he is a highly respected white hat hacker. And while Twitter called the report “a false narrative riddled with inconsistencies and inaccuracies”, most of Mudge’s claims seem entirely plausible.

Zatko filed a report in July with the Securities and Exchange Commission, Federal Trade Commission and Department of Justice. Congress received a redacted version, which was then escape to The Washington Post and CNN. My colleague James Vincent exposes what we know here, but the bottom line is that Twitter is a security nightmare (a believable claim for a platform whose defenses were demolished by teens in 2020), and former CEO Jack Dorsey’s leadership was a mess (which we could guess, because, well… I’ll let Liz Lopatto explain). You can read the redacted report online, including some of those concise quotes not intended for public consumption that Twitter executives are known for; CEO Parag Agrawal’s alleged memo that “Twitter has 10 years of unpaid security bills” isn’t quite as concise like Dick Costolo memo “we suck at dealing with abuse”, but that’s pretty good.

There could be various legal fallouts for Twitter. Lawmakers confirmed they’re investigating Zatko’s allegations, and the report claims Twitter violated a consent decree it struck in a FTC Regulations 2010, so maybe he could face fines or other complaints from the commission. But unless something weird happens, FTC fines will likely be more of a slight inconvenience than an existential threat. The worst Congress will likely do is introduce Agrawal to the age-old tradition of politicians yelling at Twitter executives during hearings.

The Twitter versus Musk test, which will begin in October, is another matter. And Zatko leads with a claim that’s particularly relevant to Musk. He says Twitter management directly lied about how many Twitter accounts were bots and that it was part of a pattern of false or misleading statements to regulators, the public and Musk himself. “Agrawal is well aware that Twitter executives have no incentive to accurately ‘detect’ or report the total number of spam bots on the platform,” he said in the report, contrary to tweets from the CEO to Musk. “Deliberate ignorance was the norm within the management team.”

Zatko denied leaking details to “anyone with a financial interest in Twitter,” and while I’ve seen vague speculation that he’s colluding with Musk, it seems unnecessarily complicated. If a disgruntled ex-employee has a problem with Twitter, something like Musk’s lawsuit is just an amazing opportunity to publicize it. That said, The Washington Post says Musk had already lined up a deposition with Zatko before the report was made public. It seems likely that Musk knew Something beforehand, perhaps through a Silicon Valley contact or, hypothetically (although that’s a bit of a stretch) through Congress – after all, Musk has recently taken an interest in politicians and vice versa.

But regardless of how the various points converge, Zatko’s claims are probably the strongest evidence Musk currently has.

The terms of the Twitter deal set a high bar for simply backing down based on newly discovered information about things like bots. But Zatko’s report describes a number of risks and errors that were not publicly known. Musk could say that Twitter failed to disclose serious operational issues in reports such as its SEC filings — and relied on those reports when it agreed to the acquisition. This would bolster his argument that Twitter hid damning information that should frustrate the deal.

Would that strengthen him enough to actually win? Some observers think there is at least a chance.

“My first reaction was, well, Musk signed this contract that made due diligence unnecessary,” says Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business and former chief economist at the SEC. . “But I think there’s a lot more to the story than that. Because I think he can argue, probably reasonably enough, that he relied on the company’s disclosures. And the whistleblower not only directly challenges some of his interactions with executives, but at least indirectly, he challenges the company’s disclosures.

This view is echoed by Ann Lipton, a law professor at Tulane University. (from Lipton full twitter feed on the report is worth reading.) Lipton is unconvinced by Zatko’s specific claims about bots since even Zatko doesn’t quite call them outright lies. He further claims that Twitter calculates its user numbers in a self-serving and dishonest way. But she agrees that the disclosure issue is a potential issue, even if it largely involves complaints that Musk never actually made — but will now likely add to the case.

“I think his claims about bots bolster Twitter’s side – he admits that [monetizable daily active user] the numbers are right, he just thinks Twitter should use alternative metrics,” Lipton said. The edge. “But his other allegations regarding various internal issues could pose problems for Twitter.” If they’re severe enough to seriously threaten the company’s long-term financial health, there’s a chance they’ll constitute a “material adverse effect” that violates the terms of the contract and lets Musk walk away.

Unfortunately for Musk, it remains difficult by design to break these agreements. As Spatt noted, Musk raised the bar by foregoing due diligence that might have uncovered operational issues on Twitter. In recent years, courts have imposed mergers even when serious financial problems have been discovered, as in a 2001 case that ended with Tyson Foods having to acquire rival IBP.

“The allegations appear significant and moderately improve Musk’s case,” says Yale Law School professor Yair Listokin. But he sees a strong analogy with the IBP case. “The contract is written to make it difficult for this type of argument to succeed.” Spatt also agrees the deal is far from a slam dunk, even though Musk’s chances are better now.

It’s also worth noting that, so far, we’ve mostly heard Zatko’s side of the story. As I said before, I find many of the claims in the report to be plausible, but many details remain redacted. Even in his explosive report, the Job noted that “Zatko provides limited documentary evidence in its spam and bot complaint.” And Agrawal responded to the post by saying that Twitter will “pursue all avenues to uphold our integrity as a company and set the record straight” – which strongly suggests the possibility of legal action against Zatko.

All of this gives Musk even more pre-trial leverage. If his goal is to trade Twitter’s price down, for example, he’s in a better position to do so. But in the long term, the experts seem above all to change the case of the billionaire of “disgracefully bad” merely “risk.”

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