Twitter was questioned by the SEC over bots and user numbers in June

By Clare Duffy, CNN Business

Earlier this summer, the Securities and Exchange Commission probed Twitter regarding its metrics of monetizable daily active users (mDAUs) and fake and spam accounts, according to filings on the SEC’s website that were first reported. last week.

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

In a June 15 letter to Twitter CEO Parag Agrawal, the agency asked about the company’s statement in its 2021 annual report that fake accounts and spam accounts for less than 5% of mDAUs, the metric that Twitter uses publicly to quantify the size of its user base. . “Please disclose the methodology used to calculate these numbers and the underlying judgments and assumptions used by management,” the SEC said in the letter.

It also asked about Twitter’s restatement of its mDAU numbers 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 had previously caused the mDAU to be overstated and how the company “concluded that there were no material weaknesses 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 fake accounts and spam is calculated “based on an internal review of a sample of accounts and the application of Twitter’s business judgment” and reiterated statements about the process included in the company’s quarterly reports. . He added that human reviewers assess thousands of randomly selected accounts from those that Twitter considers mDAU and — using public and private data such as contact information and account activity — determine whether the accounts violate one or many of its rules against spam and platform manipulation. These ratings then go through a multi-step review process, the company said.

Twitter said in the letter that its overstatement of mDAU was the 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 its other key metrics or financial statements. He added that he determined the overstatement was “insignificant” and therefore there were “no material weaknesses 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 the 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 end its $44 billion acquisition deal, after accusing Twitter of misrepresenting the prevalence of spam and fake bot accounts on its platform. Musk’s attorneys also questioned Twitter’s process for measuring mDAU. Musk agreed to buy Twitter on April 25 and initially said the Twitter deal was “temporarily suspended” as he assessed the bot issue on May 13, about a month before the SEC’s letter to the US. ‘company. On May 17, he tweeted: “Twitter claims >95% of daily active users are unique real humans. Does anyone have this experience? before calling on the SEC to assess the platform’s figures. “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 expected to go to trial in October.

Last week, Twitter’s former chief security officer, Peiter Zatko, filed an explosive whistleblower claiming the company had dangerous security and privacy breaches and accusing the company’s executives of negligence and to mislead users and regulators. Among the allegations contained in the disclosure, which was sent to the SEC and other US regulatory agencies, are claims that Twitter lacks 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 slammed Zatko and largely pushed back against his claims, saying the disclosure paints a “false narrative” by the company and is “tricked with inconsistencies and inaccuracies.”

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

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