Twitter (TWTR) CEO Jack Dorsey was sued on Monday by a shareholder claiming he breached his fiduciary duties to the social media company by giving advertisers broad access to users’ private data. The shareholder, suing on behalf of Twitter, alleges that the other company Dorsey heads, payments company Square (SQ), “benefitted wildly from this disregard for privacy.”
According to the lawsuit, filed in Delaware Chancery Court by the Ellen F. Greenberg Trust, a common stockholder in Twitter, the company’s user data practices prompted the Federal Trade Commission to notify the company in 2020 that it had violated its 2011 consent decree with the agency and a provision of the Federal Trade Commission Act. The 2011 consent degree required Twitter to improve cybersecurity practices and comply with users’ preferences for handling private data.
The plaintiff is asking the court for an order requiring Dorsey to either devote himself full-time to his position as CEO of Twitter, or resign, as well as orders requiring that Twitter take actions to reform and improve its corporate governance and procedures to protect the company and its stockholders from alleged violations.
Twitter’s July notice from the FTC, the lawsuit claims, led to Twitter’s announcement in July that it anticipated fines from the regulator to range between $150 million and $250 million. The fine, the plaintiff argues, was “entirely avoidable,” and motivated by Dorsey’s significant financial interest in Square., where he also serves as CEO.
According to the claims, Twitter’s user data policy provided Square with information that allowed it to grow its user base and increase revenues. The practice, the lawsuit says, enhanced Square’s ability to convert Twitter’s 330 million monthly average users who don’t pay Twitter directly into millions of Square and Cash App users.
The lawsuit asserts that Dorsey has control of more than 50% of Square’s voting power, giving him “a much larger economic interest in Square” than in Twitter, and incentive to push the limits in exposing the personal data of Twitter users.
Lax privacy handling led to at least two recent hacks on Twitter’s platform, the lawsuit states: one in July 2020 that used a bitcoin scam to breach the information of high profile Twitter accounts including former President Barack Obama’s, Michael Bloomberg’s, and Apple’s.
The action also goes after Twitter’s board of directors.
“As Dorsey permitted expansive access to Twitter’s user information, the members of Twitter’s board looked the other way and failed to take any action to ensure the Company’s compliance with the 2011 FTC Order,” the lawsuit says.
Twitter declined to comment on the suit. The lawsuit is far from the first criticism over Dorsey’s unusual role as CEO of two publicly traded companies. In November, NYU business professor and big tech critic Scott Galloway called for Dorsey to lose his job because of his competing loyalties.
“He should be fired,” Galloway told Yahoo Finance Live. “I mean this is a big company with thousands of employees that plays a big role in the discourse of society, and about 1 p.m. every day he peaces out and he goes to another firm.”
Alexis Keenan is a legal reporter for Yahoo Finance and former litigation attorney.
Follow Alexis Keenan on Twitter @alexiskweed.