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SEC questions Twitter over how it counts fake accounts

DETROIT (AP) — U.S. securities regulators are questioning Twitter over how it counts fake accounts on its platform.

In June, the Securities and Exchange Commission asked the company about its methodology for calculating fake or spam accounts and “the underlying judgments and assumptions used by management.”

The agency’s Division of Corporate Finance made the request in a June 15 letter, shortly before Tesla CEO Elon Musk raised the issue as a reason to pull out of a deal to buy Twitter for $44 billion.

These questions can be routine, and it was unclear whether the SEC has opened a formal investigation into the fake Twitter accounts. The SEC had no comment Wednesday; Twitter did not immediately respond to a request for comment.

The Palo Alto, California law firm Wilson Sonsini responded in a June 22 letter saying the company believes it adequately disclosed the methodology in its filed annual report for 2021.

The letter says that Twitter makes its estimates of fake accounts with an internal review of sample accounts. The number of fake accounts “represents the average number of fake or spam accounts in the samples during each monthly analysis period for a quarter,” the letter said.

It added that less than 5% of Twitter’s “Monetizable Daily Active Users or Usage,” or mDAU, were fake accounts in the fourth quarter of last year, the period the SEC had questioned.

The letter was revealed in a filing released by the SEC on Wednesday, a day after Twitter’s former chief security officer alleged that the company misled regulators about its flawed cybersecurity defenses and its negligence in trying to root out fake accounts spreading disinformation.

Peiter Zatko, who served as Twitter’s chief security officer until he was fired earlier this year, filed the whistleblower complaints last month with the SEC, the Federal Trade Commission and the Justice Department. Whistleblower Aid, a nonprofit legal organization, which is working with Zatko, said he exhausted all attempts to resolve his concerns within the company before he was fired in January.

Among Zatko’s most serious allegations is that Twitter violated the terms of a 2011 FTC settlement by falsely claiming that it had implemented more stringent measures to protect the security and privacy of its users. Zatko also accuses the company of deception related to handling “spam” or fake accounts, an accusation that is at the heart of Musk’s attempt to back out of the Twitter acquisition.

Twitter said Tuesday that Zatko was fired for “ineffective leadership and poor performance” and said the “accusations and opportunistic timing appear to be designed to attract attention and inflict harm on Twitter, its customers and shareholders.” The company called his claim “a false narrative” that is “riddled with inconsistencies and inaccuracies and lacks significant context.”

Musk called off the sale in July, claiming Twitter failed to provide a detailed methodology for calculating fake accounts. But Twitter sued in Delaware Chancery Court, asking a judge to order Musk to go ahead with the purchase.

Twitter has set September 13 as the date for its shareholders to vote on Musk’s pending purchase of the company, and the board is recommending approval.

A trial on the Twitter lawsuit is scheduled for October.

Musk agreed in April to buy Twitter and take it private, offering $54.20 a share and promising to relax surveillance of the company’s content and remove fake accounts. As part of the deal, Musk and Twitter agreed to pay the other a $1 billion breakup fee if either was responsible for the collapse of the deal.

In its response, Twitter said that the review of fake accounts is done manually by people reviewing thousands of them. Accounts are chosen randomly, and employees use a complex set of rules “that define spam and platform manipulation.” An account is considered fake if it violates one or more of the rules, the letter said. Fake accounts go through a multi-step review and are investigated by multiple trained employees, she said.

The SEC also disputed Twitter’s disclosure that it overestimated the number of monetizable accounts from the first quarter of 2019 through the end of last year. The agency wrote that the error persisted for three years and asked why the company did not consider it a weakness in its financial reporting and controls.

In response, Twitter said the accounts’ overstatement had no impact on its financial statements and that the overstatement was less than 1% of its average daily monetizable users.

Twitter’s share price was up just over 1% in Wednesday afternoon trading.


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