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Twitter whistleblower testimony: What to watch for

Yahoo Finance’s Alexis Keenan joins the Live show to discuss the former head of security at Twitter testifying before the Senate Judiciary Committee and what it means for Elon Musk's legal battle with the social media company.

Video Transcript

BRAD SMITH: Twitter shareholders, they're expected to vote yes to Elon Musk's $44 billion acquisition of Twitter, according to Reuters. But shareholders will have to wait for a judge to decide and for today's congressional testimony from Twitter's former security chief, Peiter Zatko.

Zatko, a whistleblower now against the social media platform, says it turned a blind eye to security deficiencies. His testimony before the Senate Judiciary Committee getting underway and expected to become a part of Musk's case. Yahoo Finance's Alexis Keenan joins us now. What most notably should we be paying attention to as these proceedings move forward and as this hearing takes place today, too?

ALEXIS KEENAN: Yeah, so just getting underway now with some opening statements. So we'll be dipping into this testimony as long as it lasts today. But there's a couple of keys here that I'm going to be listening for and that are really relevant to both Twitter independently, regardless of what happens with Elon Musk's proposed acquisition and proposed walkaway from the deal.

So first is that Zatko's claim is that Twitter misled regulators about its privacy and security practices. He says that those practices put them in violation of an FTC agreement that the company reached with the FTC in 2011. He also says as to Musk's case-- this is important-- that among total users, that Twitter does not know how many bots are fake accounts are on its platform. That's the part that goes to Musk's claims.

But why is Congress looking at this? First, Twitter just independently-- in May, you have to look at the FTC's fine against Twitter. It imposed a $150 million fine in settlement for breach of that very same 2011 agreement that Zatko is taking at issue here. That settlement was about deceiving users, collecting their emails, collecting their phone numbers, and telling them it was for account security when, in fact, the company was using it to turn over to advertisers for ad targeting.

So the SEC also said in June that it would like to question Twitter about the bots, about the underlying models that the company is using in order to make its estimations that are at issue in the Musk case. So then we turn over to what we should be listening for in this testimony as for its impact on Elon Musk's case. Well, what I'll be listening for is any direct evidence that Twitter knew that it's bot counting or fake account counting was inaccurate, meaning so inaccurate that it's not even within the estimates, reasonably within the estimates that it put out to the SEC and other financial disclosures.

If it knew that its estimates were wildly off or not reliable, that's the kind of testimony from Zatko that could change Musk's outcome in the litigation for specific performance to buy the company. So in Zatko's complaint so far, though, he doesn't go so far as to make that claim. And so far, we haven't seen any evidence at all. So be looking for some documents to see if he introduces any of those to the senators that will be questioning him today.

JULIE HYMAN: Now, the Wall Street Journal is reporting today that Twitter shareholders are going to approve Musk's acquisition of Twitter. Now, whether it's actually going to happen, of course, is a matter for the courts at this point. But I do wonder if Zatko's testimony today and then, by extension, eventually, in the trial, like, I guess what happens next, even if the shareholders approve it, it could be a moot point, right?

ALEXIS KEENAN: It could be a moot point. So expected to be wildly in favor, overwhelmingly in favor. The shareholders will say, yes, we want this deal. And looking at the numbers and the stock price, they should do that, right? It makes logical sense. But could be moot, depending on what the judge decides in this case.

Also could be that the parties reach a settlement. As contentious as this issue has been over the merger deal, that's still a possibility. So yes, definitely could be a moot point, but we will have to wait and see. And we will be following this testimony for its duration today. And we will definitely highlight any big key points that come out of it.

JULIE HYMAN: OK, look forward to that. It should be very interesting. Thank you.