SEC questioned Twitter about bots and user numbers in June.

The Securities and Exchange Commission earlier this summer scrutinized Twitter regarding its estimations of monetizable daily active users (mDAU) and fraudulent and spam accounts, according to documents uploaded to the SEC’s website that were first published last week.

The revelation of the correspondence comes at a time when Twitter is under increased scrutiny for its viewership measures due to its legal dispute with Elon Musk and a whistleblower revelation last week that questioned the company’s incentives to accurately track spam and fake bot accounts.

The government inquired about the company’s claim in its 2021 annual report that fraudulent and spam accounts contribute up less than 5% of mDAU, the metric Twitter uses openly to estimate the size of its userbase, in a letter sent to CEO Parag Agrawal on June 15. The SEC wrote in the letter, “Please provide the methodology used in calculating these figures and the underlying judgments and assumptions used by management.

Additionally, it questioned Twitter’s restatement of its mDAU numbers for the prior three years in its quarterly report from March 2022. The SEC asked for details on how and when the company found a mistake that had previously led to an overstatement of mDAU as well as how it came to the conclusion that its disclosure controls and procedures were in place as of March 31, 2022 and that there was no material weakness in its internal control over financial reporting.

In a letter dated June 22, Twitter reaffirmed the claims made about the method in the company’s quarterly reports and explained how the percentage of fake and spam accounts is determined. This is done “based on an internal review of a sample of accounts and the application of Twitter’s business judgment.” It was added that human reviewers assess thousands of accounts that were randomly selected from those that Twitter considers to have mDAU and determine whether they violate one or more of its policies against spam and platform manipulation using both public and private data, such as contact information and account activity. The corporation stated that these assessments are subsequently put through a multi-step review procedure.

Twitter said in the letter that its overestimation of mDAU was caused by a March 2021 feature that allowed users to link many accounts for quick switching between them.

The company claimed that none of its other important metrics or its financial statements were impacted by the overstatement of mDAU. It continued, “There was not a major deficiency in its internal control over financial reporting,” because it had been established the overstatement was “immaterial.”

The SEC tweeted on July 27 that it has finished its evaluation of the March quarterly report and the 2021 annual report. The corporation and its management are accountable for the completeness and appropriateness of their disclosures, the agency stated.

After accusing Twitter of exaggerating the amount of spam and phony bot accounts on its network, Musk is currently fighting the company in court to cancel his $44 billion takeover bid. The methodology used by Twitter to calculate mDAU has also been contested by Musk’s attorneys. Musk first announced on May 13 — almost a month before the SEC’s letter to the firm — that the Twitter deal was “temporarily on pause” as he evaluated the bot issue after reaching an agreement to purchase the company on April 25. He tweeted this on May 17: “According to Twitter, more than 95% of daily active users are actual, individual people. Does anyone have experience like that? “before requesting that the SEC review the platform’s financials. Greetings, @SECGov. Is anyone home? In the SEC’s letters to twitter, neither Musk nor the acquisition were mentioned.

Trial in the Musk v. Twitter lawsuit is scheduled for October.

Peiter Zatko, the former head of security at Twitter, filed a shocking whistleblower report this week, alleging that the firm has significant security and privacy violations and that management have been careless and have misled customers and regulators. The statement includes charges that Twitter does not have an accurate count of the amount of spam and phony bot accounts on its network and that the firm has little incentive to do a thorough count. The disclosure was addressed to the SEC and other US regulatory agencies.

The disclosure, according to Twitter, creates a “false picture” of the corporation and is “riddled with contradictions and falsehoods,” criticizing Zatko and vigorously disputing his claims.
The SEC and Twitter declined to comment on the correspondence with the SEC.

source: CNN

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