How the Twitter whistleblower’s claims could empower the Federal Trade Commission—and weaken Big Tech along the way – Fortune

As Silicon Valley and Washington continue to process the allegations levied by former Twitter head of security Peiter “Mudge” Zatko, the FTC’s role in overseeing—or perhaps more to the point, failing to oversee—the social media company has quickly morphed into a political football. If the discourse eventually turns into action, it could spell an era of heightened antitrust and data privacy scrutiny of Big Tech giants, which have mostly enjoyed a period of limited intervention from federal bureaucrats.

The budding debate centers, for now, on whether the FTC’s relatively meager headcount might be contributing to any privacy shortcomings at Twitter, which houses personal identifiable information on more than 200 million daily active users. The FTC has had a standing order to monitor Twitter’s security program since 2011, the result of security screwups at the company that allowed hackers to access user data.

The Washington Post reported Tuesday that a former FTC official who worked on the case “said the agency was badly understaffed at the time, and that the enforcement division had failed to keep a close eye on multiple companies after reaching privacy settlements, including the one with Twitter.” 

The Post report didn’t specify a time frame for this purported lack of diligence on the FTC’s part, and it didn’t provide nearly enough information to definitively substantiate those claims. Still, there’s enough circumstantial evidence to lend them credence. 

Between 2005 and 2020, a period during which the U.S. digital economy’s output doubled from $1.6 trillion to $3.3 trillion, the FTC’s full-time employee count only grew from 1,019 to 1,123. That cadre of staffers is expected to police not only tech giants, but also telecommunications behemoths, hospital chains, marketing firms, big banks, and all other manner of corporate entities.

In addition, FTC leaders from both major political parties—more often Democrats than Republicans—have grumbled about understaffing, particularly as they take on corporate behemoths with far deeper benches of lawyers. Current FTC Chair Lina Khan, a Democrat who has pushed for more aggressive antitrust and privacy policing, told CNBC in January that her agency is “severely under-resourced,” forcing staffers to skip some potential enforcement actions.

In the wake of Tuesday’s report, one of the chief cheerleaders for more FTC scratch, U.S. Rep. Jan Schakowsky (D-Ill.), told the Post that the agency “absolutely needs more resources.”

“The status quo has once again failed American consumers, from coast to coast and here in the heartland,” Schakowsky said.

But while Democrats have lobbied in the past for adding to the FTC’s coffers, most recently pitching an additional $1 billion dedicated to digital privacy and security, Republicans have resisted giving more power to a bureaucratic agency. 

Conservative policymakers also have seized on two recent developments—a sharp decline in morale among FTC employees and an aggressive antitrust lawsuit filed against Meta that agency staffers reportedly opposed—to argue that Khan is pursuing an overly partisan agenda. In March 2022, the FTC’s two Republican commissioners said a proposed 30% increase in the FTC’s annual budget “provides no road map for effectively deploying the dramatic increase in resources it purports to justify, and no assurance that the agency will abandon its present course of deviating from sound legal precedent and the Commission’s established jurisdiction.”

So while the Twitter whistleblower’s bombshell could add momentum for building a more robust FTC, any efforts to provide the agency with additional dollars will need to survive the partisan battles already brewing in Washington. If the past 15 years are prelude, the FTC will likely need to keep making do with what it already has.

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Jacob Carpenter

NEWSWORTHY

Waiting for a warning? Tether, the company behind the world’s largest cryptocurrency stablecoin, may be in violation of new Treasury Department sanctions targeting a service accused of enabling money laundering, the Washington Post reported Wednesday. A Post analysis of Dune Analytics data found that Tether, which operates an eponymous stablecoin, is not blacklisting accounts linked to Tornado Cash, a digital asset mixing service banned in the U.S. following a federal order earlier this month. Tether executives said they typically comply with regulatory orders, but they have not received one from U.S. officials or law enforcement. 

Pedal to the metal. Peloton started selling its fitness equipment and apparel through Amazon platforms Wednesday, ending its commitment to a fully direct-to-consumer approach, the Wall Street Journal reported. Company officials hope the move will boost revenue following a period of declining sales, management mistakes, and manufacturing woes at the home fitness company, which has seen its share price tank 88% in the past year. Peloton shares spiked 20% in midday trading Wednesday.   

Just a few questions. The Securities and Exchange Commission conducted a brief investigation this summer into Twitter’s methods for measuring spam bot accounts on its social media platform, ultimately taking no action against the company, Bloomberg reported Wednesday. The inquiry followed Twitter officials disclosing an error made in 2019 that led to the company overstating its daily active user count for nearly three years, according to letters made public Wednesday. SEC officials did not reference Elon Musk, who is trying to scuttle his $44 billion acquisition of Twitter owing to his belief that the company has made false statements about the prevalence of spam bot accounts, in their letters to Twitter.

Three hours of chaos. Facebook users were flooded with posts tied to celebrity accounts early Wednesday morning, the result of a brief bug tied to an internal issue, The Verge reported. A Meta spokeswoman wrote on Twitter that the three-hour issue stemmed from a “configuration change,” though additional details were not provided. The bug pushed posts from common users tagging celebrities like Lady Gaga and The Beatles into main News Feeds.

FOOD FOR THOUGHT

A chilly forecast. Coinbase CEO Brian Armstrong is bundling up for a long crypto winter. The leader of the largest U.S. cryptocurrency exchange said Tuesday that the downturn in digital asset prices could extend another 12 to 18 months, with the potential for an even longer valley, Fortune’s Marco Quiroz-Gutierrez wrote. In an interview with CNBC, Armstrong said his company is cutting spending on marketing, web services, and vendors following a sharp decline in year-over-year revenue. He added that Coinbase hopes to build revenue streams that are more immune to digital asset volatility.

From the article:

Most of the company’s revenue is tied to trading volumes on its crypto exchange, but Armstrong said Coinbase is increasingly moving its business toward what he called “subscription and services,” which could help bring more consistency to the company’s financials. Subscriptions and services now make up 18% of the company’s revenue, he said.

“I’d like to get to a place where more than 50% of our revenue is subscription and services,” he told CNBC.

IN CASE YOU MISSED IT

$100 million in NFT thefts over last year jumped mid–‘crypto winter,’ by Taylor Locke

Gamescom’s triumphant return marred by controversial blockchain game from Grand Theft Auto developer, by Christiaan Hetzner

The untold story of BlackBerry: New film details the spectacular rise and epic fall of the world’s first smartphone, by Chris Morris

California winemakers are using A.I. to combat climate change challenges, by Stephanie Cain

Subprimate crisis: How monkey JPEGs pushed a crypto lender to the brink of insolvency, by Ekin Genç

Elon Musk must disclose potential investors in his now abandoned Twitter bid, judge rules, by Jef Feeley and Bloomberg

Why Ukraine is going all in on tech to rebuild its economy, by Oleksandr Bornyakov

BEFORE YOU GO

When the music stops. The latest edition of A.I. gone wrong features an animated musician, a hit recording label, and some gross racial stereotypes. Fortune’s Alice Hearing reported Wednesday that Capitol Records has split with FN Meka, an augmented-reality rapper partially powered by A.I., after complaints that the digital creation traded on Black stereotypes and trivialized issues like police brutality. FN Meka uses a human voice, but its lyrics and music are developed using A.I. technology built by Factory New, a company founded on disrupting the traditional music industry. Capitol Records signed FN Meka earlier this month after it amassed about 10 million followers on TikTok, but the backlash to its appearance and lyrics prompted a quick retreat.