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Why Elon Musk’s decision to skip due diligence on Twitter keeps getting worse

August 23, 2022, 6:07 PM UTC
Elon Musk in a cowboy hat
Suzanne Cordeiro—AFP/Getty Images

Elon Musk’s rush into a $44 billion acquisition of Twitter already looked like a bad decision. Now, his decision to forgo due diligence resembles something close to a calamity.

CNN and the Washington Post dropped bombshell reports Tuesday about a whistleblower complaint lodged against Twitter by the company’s former head of security, a highly respected veteran of Silicon Valley and Washington defense circles. The whistleblower, Peiter “Mudge” Zatko, alleges that Twitter executives misled federal regulators and board members about major security lapses throughout the company, putting the sensitive data of 238 million daily active users—including political figures and dissidents—within the grasp of hackers.

Twitter forcefully denied the allegations in statements to both media outlets, portraying Zatko as an opportunistic, disgruntled employee who was fired after 15 months due to his “poor performance and leadership.” Company officials added that many of Zatko’s allegations are “riddled with inaccuracies,” though they did not offer a point-by-point rebuttal to his claims.

At this point, it’s far too early to pass judgment on the validity of Zatko’s numerous allegations, many of which center on Twitter failing to implement basic security protocols and withholding information that would expose those failures. 

Zatko, a former cybersecurity official at the Pentagon and Google, ranks among the most well-respected leaders in the industry, lending him copious amounts of credibility. Twitter also has endured multiple embarrassing hacks in recent years, bolstering Zatko’s claims of lax cybersecurity oversight. Still, many of Zatko’s claims involve highly technical matters that require extensive investigation.

It’s also too early to know whether Zatko’s claims—if proven true—could or would derail Musk’s impulsive agreement in April to purchase Twitter. 

The complaint certainly bolsters Musk’s attempt to back out of the deal, ostensibly due to his belief that Twitter has misled him about the company’s value by undercounting the prevalence of spam bots on the platform. (Musk cynics argue he’s just mad that he might overpay by many billions of dollars for Twitter.) 

However, Zatko’s allegations might not meet the legal threshold for reversing the agreement, which requires proof that Twitter made false statements that would cause a “material adverse effect” on the company. Musk also has little time to vet Zatko’s claims ahead of a fast-tracked trial, set for mid-October, in which a Delaware chancery judge will decide whether Musk has grounds for reneging or will have to go through with the acquisition. Zatko has been subpoenaed as part of those proceedings, a lawyer for Musk told CNN.

Still, here’s what it’s not too early to say: Musk, in all likelihood, could have opted against buying the company or sought a much better deal had he conducted a standard due diligence review.

If Musk had sicced a collection of lawyers and investigators on Twitter, he very well could have uncovered some or all of the claims lodged by Zatko. A lawyer representing Zatko said the whistleblower complaint process started before Musk’s interest in buying Twitter became public, but his client hadn’t been in contact with Musk, CNN reported.

While it’s unclear whether Zatko would have engaged with Musk’s team during a pre-deal due diligence inquiry, Twitter’s former security chief isn’t exactly trying to hide his frustration with the company. 

In addition, Zatko harbored some of Musk’s suspicions about Twitter understating the amount of bots on the platform. In his complaint, Zatko wrote that he believes “senior management had no appetite to properly measure the prevalence of bots,” in part because accurate measurements “would harm the image and valuation of the company.” (Twitter CEO Parag Agrawal tweeted in May that the company is “strongly incentivized to detect and remove as much spam as we possibly can,” noting that fake accounts harm users’ experience on the platform.)

Perhaps just as important, the Post’s reporting shows that multiple current and former employees agree with at least some of Zatko’s assertions. Together, their accounts paint Twitter as a mismanaged mess of an organization, contributing to serious concerns about security. 

The coming months will reveal just how costly Musk’s forgoing of due diligence will be for the world’s wealthiest man. Musk might still wiggle his way out of the deal, perhaps with some help from Zatko. But if a judge forces Musk to grossly overpay for a company riddled with security, management, and spam bot issues, he’ll have nobody to blame but himself.

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Jacob Carpenter


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From the article:

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