Who would have thought having its founder subpoenaed wouldn’t be the worst part of Twitter (NYSE:TWTR)’s week? Yesterday, Axios reported Elon Musk had subpoenaed Jack Dorsey as part of his quest to end his TWTR stock acquisition. But that news has quickly been overshadowed by something much more pressing: a whistleblower has come forward.
One of Twitter’s former executives has issued damning accusations regarding Twitter’s security problems. According to his statements, Twitter’s actions “pose a threat to its own users’ personal information, to company shareholders, to national security, and to democracy.” The story broke before markets opened today, but since trading began, TWTR stock has been falling.
Twitter already had plenty of problems as it prepares to do battle in court with Musk. The long-drawn out saga that began with Musk’s attempts to acquire the company pushed Twitter’s second-quarter earnings down. The billionaire’s accusations that the social media company has not been truthful with its bot count information disclosure cast it in a bad light. Now, a Twitter insider has come forward and offered detailed testimony regarding much worse things.
There’s a lot to unpack regarding the Twitter whistleblower and what investors can expect. Let’s examine the story in context.
TWTR Stock and the Whistleblower
Half an hour after markets opened today, TWTR stock plunged 4%. While it has attempted to rally, TWTR is currently on a downward trajectory and looks poised to continue falling. As of this writing, it is down 5% for the day. In the face of this type of scandal, it is expected a stock will plunge. What is less clear is how far it will fall and how long it will take for TWTR stock to stabilize. Let’s unpack the scandal that is sending it down.
The whistleblower is Peiter “Mudge” Zatko, described as an “ethical hacker.” Although his LinkedIn profile lists him only as an “executive” at Twitter, CNN reports he previously held the title of head of security and reported directly to the CEO. This would have put him at an excellent vantage point to observe the inner workings of the company and take note of any illicit activity.
Twitter fired Zatko in 2020 for what it described as poor performance. The former executive claims, though, it happened after he attempt to let Twitter’s board know of security vulnerabilities. CNN elaborates further on the specifics of Zatko’s statements:
“The disclosure … paints a picture of a chaotic and reckless environment at a mismanaged company that allows too many of its staff access to the platform’s central controls and most sensitive information without adequate oversight. It also alleges that some of the company’s senior-most executives have been trying to cover up Twitter’s serious vulnerabilities, and that one or more current employees may be working for a foreign intelligence service.”
It doesn’t stop there, though. Zatko also alleged some Twitter leaders have provided misleading information about the platform’s spam bot count. If this is correct, it will vindicate claims made by Musk. According to the Daily Beast, Zatko’s attorney has stated his client has no involvement with the Tesla (NASDAQ:TSLA) CEO. Musk’s quest to acquire Twitter initially sent the stock up, likewise pushing it down when he announced its termination. Zatko’s disclosure could be exactly what Musk needs to come out of the court case on top.
What Comes Next for Twitter
When a whistleblower comes forward with this type of testimony, it often prompts a federal investigation. Until that happens, it will be the word of a former employee against the company that fired him.
An investigation will provide the answers investors are looking for, as it will determine how much of Zatko’s disclosure is true. If it is found to be mostly accurate, particularly the national security threat accusations, it will push TWTR stock down considerably. But even if authorities determine Zatko’s information is incorrect, it will likely have done significant damage to TWTR stock already. There’s almost no scenario in which Twitter emerges from this unscathed.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.