What The Whistleblower Means For Elon Musk And Twitter: 'Gasoline Into The Fire'

The former security chief for social media platform Twitter Inc. TWTR is speaking out about practices at his former company.

Here’s a look at the whistleblower complaint and what it could mean for the pending acquisition of Twitter by Tesla Inc. TSLA CEO Elon Musk.

What Happened: Former Twitter security chief Peiter “Mudge” Zatko, according to the Washington Post, alleges the San Francisco-based company:

• Misled regulators and its own board of directorsabout its security practices and spam controls
• Had “extreme, egregious deficiencies” to offset the threat of hackers and spam accounts
• Violated a settlement with the Federal Trade Commission (FTC) over its security plan
• Was unable to protect its large daily user base, which includes prominent accounts like public figures, heads of states and government agencies.
• Prioritized user growth figures instead of working through its spam problems due to bonuses being tied to the daily user figures.

Zatko also says he warned colleagues of vulnerable software and potential breaches.

The complaint was filed last month with the U.S. Securities and Exchange Commission, the Department of Justice and the FTC. Among the accounts mentioned that could be subject to hacks due to poor software were Musk as well as former U.S. Presidents Barack Obama and Donald Trump.

The former Twitter security chief also accuses Twitter CEO Parag Agrawal of lying when he said the company was incentivized to fight spam.

Twitter spokeswoman Rebecca Hahn spoke to the Washington Post after Zatko came public with the information.

“Security and privacy have long been top companywide priorities at Twitter,” Han said, while labeling Zatko’s claims “riddled with inaccuracies.”

Twitter removes a million spam accounts every day, and daily users are the smallest of three factors for bonus payments for executives, she explained.

Hahn also said Zatko was fired from Twitter after “poor performance and leadership.”

See Also: Why Twitter Stock Is Falling Today 

Why It’s Important: One analyst spoke to Benzinga about what the whistleblower could mean for the pending court case.

“This throws gasoline into the fire around the bot issue with Musk and Twitter,” Wedbush analyst Dan Ives told Benzinga. “This alarming story also raises security concerns which will be a major focus of the Beltway on Twitter.”

Zatko was hired by former Twitter CEO Jack Dorsey in 2020 after a major hack happened at Twitter and was later fired by Agrawal in January. Zatko said he felt “ethically bound” to come forward now. His comments, which center on spam accounts and security flaws, could be pushed into the spotlight ahead of a trial between Twitter and Musk.

Musk walked away from the $44 billion deal after stating he did not receive enough information on the spam and bot issues. Twitter sued Musk and set up a court battle set to begin on Oct. 17, 2022.

Musk then countersued Twitter, and the two parties have been issuing subpoenas to anyone who might be able to help their case.

Musk's legal team recently issued a subpoena to Dorsey, in an effort to inquire about bonus payments.

The latest in the Twitter buyout saga could see the trial odds tilt in Musk’s favor with new clarity into Twitter’s bot and spam issues. Whether Musk decides to buy Twitter for a lower price ahead of the October trial remains to be seen.

TWTR Price Action: Twitter shares are down 3% to $41.55 on Tuesday versus a 52-week range of $31.30 to $54.57.