Musk cites whistleblower complaint as additional reason to exit Twitter deal
30 August 2022, 17:14
Elon Musk has spent months alleging that the company he agreed to acquire undercounted its fake and spam accounts.
Elon Musk and Twitter have lobbed salvos at each other in the latest round of legal filings over the Tesla chief executive’s efforts to rescind his offer to buy the social media platform.
Mr Musk filed more paperwork to terminate his agreement to buy Twitter, this time based on information in a whistleblower complaint filed by Twitter’s former head of security.
Twitter hit back by saying his attempt to back out of the deal is “invalid and wrongful”.
In a filing with the Securities and Exchange Commission (SEC), Mr Musk said his legal team notified Twitter of “additional bases” for ending the deal on top of the ones given in the original termination notice issued in July.
Twitter has sued Mr Musk, asking the Delaware Chancery Court to force him to go through with the 44 billion dollar (£37 billion) deal.
A high-stakes trial is set to start in the week of October 17.
In a letter to Twitter, which was included in the filing, Mr Musk’s advisers cited the whistleblower report by former executive Peiter Zatko – also known by his hacker handle Mudge.
Mr Zatko, who served as Twitter’s head of security until he was sacked early this year, alleged in his complaint to US officials that the company misled regulators about its poor cybersecurity defences and its negligence in attempting to root out fake accounts that spread disinformation.
The letter, addressed to Twitter’s chief legal officer Vijaya Gadde, said Mr Zatko’s allegations provide extra reasons to end the deal if the July termination notice “is determined to be invalid for any reason”.
Billionaire Mr Musk has spent months alleging that the company he agreed to acquire undercounted its fake and spam accounts, which means he does not have to go through with the deal.
In a separate SEC filing, Twitter responded to what it called Mr Musk’s latest “purported termination”, saying it is “based solely on statements made by a third party that, as Twitter has previously stated, are riddled with inconsistencies and inaccuracies and lack important context”.
Mr Zatko received a subpoena on Saturday from Mr Musk’s team compelling him to testify in what Mr Zatko’s lawyers emphasised would be an “involuntary” deposition ahead of the coming courtroom battle between Twitter and Mr Musk.
“He did not make his whistleblower disclosures to the appropriate governmental bodies to benefit Musk or to harm Twitter, but rather to protect the American public and Twitter shareholders,” Mr Zatko’s lawyers wrote in a prepared statement.
Twitter is likely to amend its lawsuit to include Mr Zatko’s allegations, so the court can decide on both the bot and cybersecurity issues.
That could delay the trial because Mr Musk will say he needs more time to prepare, said Brian Quinn, a law professor at Boston College.
The court will have to decide whether the bot or cybersecurity issues are a “material adverse effect” that will harm Twitter’s business for years – a difficult legal bar to clear, Mr Quinn said.
The bot issue, which Twitter disclosed in filings with the SEC, seems to be an issue that Twitter would win on, Mr Quinn said.
Cybersecurity problems raised by Mr Zatko may not be such an easy victory, he said.
“This is more grist for the mill,” Mr Quinn said.
“It’s not as obvious for the most part that this is a winner for Twitter. But once you start to analyse these closely, it’s still an uphill battle for Musk.”
