This analysis was first published in SvD Näringsliv, in Swedish, on August 24th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
A whistleblower claims Twitter has a bigger spam problem than the company admits — exactly what Elon Musk has been saying. But that doesn’t necessarily mean the billionaire can walk away from the deal to buy the company.
There isn’t a Twitter user in the world who doesn’t know the service has a spam problem. It ranges from Russian bots spreading disinformation to scammers luring people in with cryptocurrency. The phenomenon is well known and beyond dispute. That the service is influential among politicians and media — and therefore a plausible arena for political influence — is equally uncontroversial.
The question that has come into focus lately is more about how big these problems actually are, and how much they affect Twitter as a company.
It’s in this light you can see the latest report from a Twitter whistleblower. And not just any whistleblower — it’s the company’s former head of security, Peiter Zatko. In an extensive document, Zatko goes through a long list of violations, including that the company misled both its board and regulators about its security practices, and that it lacks the resources and tools to understand how big the spam problem really is.
A complicating factor is that Zatko was recently fired from Twitter. After just a few months as new CEO, Parag Agrawal decided to fire both Zatko and the company’s chief information security officer. According to the company, it was due to “poor performance”. This happened in January of this year, so you can’t rule out that the conflict between them still lingers. At the same time, there are considerably less dramatic ways to signal dissatisfaction with being fired than writing an 84-page whistleblower report and going public with your name in CNN and the Washington Post.
At first glance, Tesla CEO Elon Musk looks like a winner in all of this. He is currently in a legal dispute with Twitter as he wants to terminate the deal to buy the company for around SEK 470 billion. Musk claims Twitter’s user numbers are inflated and that the volume of spam bots and fake accounts is far higher than previously stated. Zatko’s report is therefore tailor-made for Musk, and his lawyers have already requested more information from him ahead of the trial that starts on October 17th in the state of Delaware in the US.
It’s not quite that simple, though.
That Twitter has a spam problem is, as noted, well known — including to Musk. He explicitly asked for more information on the volume of spam, which suggests the problem was known before the agreement to buy the company was signed. The question of whether Musk needs to honour his side of the deal isn’t primarily about the volume of spam, either — even if he has tried to make it sound that way.
What will be settled in court is whether what Twitter told Musk affects the company in a “materially adverse” way. So what counts as material, in this context?
According to Matt Levine, a Bloomberg columnist and former lawyer specialising in corporate acquisitions, the Delaware court has previously said that a revenue shortfall of around 40-50 percent can be considered material. A very high bar, in other words. That would mean Musk has to show that the spam volume is so high it would result in Twitter losing half its revenue. That is a considerably harder thing to prove than simply showing there are more spam accounts than previously stated.
The report from the whistleblower could therefore harm Twitter in more than one way. If it turns out that information was withheld from regulators, that alone could result in hefty fines. But if new grounds can be found in the report for why the company has suffered material harm, it may also have given Elon Musk the ammunition he needs to get out of the deal.
Musk’s original bid for Twitter was $54.20 per share. Yesterday’s close was $39.86. He has billions of reasons to look for new arguments, in other words.
