Twitter was questioned by SEC over bots, user numbers in June

By Clare Duffy, CNN Business

The Securities and Exchange Commission earlier this summer probed Twitter regarding its measurements of monetizable daily active users (mDAU) and false and spam accounts, according to documents filed to the SEC’s website that were first reported last week.

News of the correspondence comes as Twitter faces heightened attention over its audience measurements, amid its legal battle with Elon Musk and following a whistleblower disclosure last week that called into question the company’s incentives to properly measure spam and false bot accounts.

In a June 15 letter addressed to Twitter CEO Parag Agrawal, the agency asked about the company’s statement in its 2021 annual report that false and spam accounts make up less than 5% of mDAU, the metric Twitter uses publicly to quantify the size of its userbase. “Please disclose the methodology used in calculating these figures and the underlying judgements and assumptions used by management,” the SEC said in the letter.

It also asked about Twitter’s restatement of its mDAU figures for the previous three years in its March 2022 quarterly report. The SEC requested information on how and when the company discovered an error that previously caused it to overstate mDAU and how the company “concluded there was not a material weakness in your internal control over financial reporting and that your disclosure controls and procedures were effective as of March 31, 2022.”

Twitter explained in a letter dated June 22 that the percentage of false and spam accounts is calculated “based on an internal review of a sample of accounts and the application of Twitter’s business judgment” and reiterated the statements on the process included in the company’s quarterly reports. It added that human reviewers evaluate thousands of accounts randomly chosen from those Twitter considers mDAU and — using both public and private data such as contact information and account activity — consider whether the accounts violate one or more of its rules against spam and platform manipulation. Those assessments are then subject to a multi-step review process, the company said.

Twitter said in the letter that its overstatement of mDAU was a result of a feature launched in March 2021 that allowed people to link separate accounts to easily switch between them.

The company said the overstatement of mDAU had no impact on any of its other key metrics or its financial statements. It added that it determined the overstatement was “immaterial,” and therefore “there was not a material weakness in its internal control over financial reporting.”

On July 27, the SEC responded to Twitter saying it had completed its review of the 2021 annual report and March quarterly report. “We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures,” the agency said.

Musk is currently fighting the company in court to exit his $44 billion acquisition deal, after accusing Twitter of misrepresenting the prevalence of spam and fake bot accounts on its platform. Musk’s lawyers have also questioned Twitter’s process for measuring mDAU. Musk agreed to buy Twitter on April 25 and first said the Twitter deal was “temporarily on hold” while he evaluated the bot issue on May 13 — about a month before the SEC’s letter to the company. On May 17, he tweeted: “Twitter claims that >95% of daily active users are real, unique humans. Does anyone have that experience?” before calling on the SEC to evaluate the platform’s numbers. “Hello @SECGov, anyone home?” Neither Musk nor the acquisition were mentioned in the SEC’s letters to Twitter.

The case between Musk and Twitter is set to go to trial in October.

Last week, former Twitter head of security Peiter Zatko filed an explosive whistleblower disclosure claiming the company has dangerous security and privacy violations and accusing company executives of negligence and misleading users and regulators. Among the allegations in the disclosure, which was sent to the SEC and other US regulatory agencies, are claims that Twitter does not have an accurate count of the number of spam and fake bot accounts on its platform and that the company has little incentive to undertake a full count.

Twitter has criticized Zatko and broadly pushed back on his allegations, saying the disclosure paints a “false narrative” of the company and is “riddled with inconsistencies and inaccuracies.”

Twitter and the SEC declined to comment on the SEC correspondence.

The-CNN-Wire
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