Elon Musk quotes Twitter whistleblower as new grounds to cancel $44bn deal

Elon Musk has seized on a whistleblower report by Twitter’s former security chief to bolster his legal fight to terminate his $44bn deal to buy the social media company.

Musk’s legal team wrote to Twitter executives on Monday, according to a filing released on Tuesday, claiming that if true, Peiter Zatko’s allegations breach several aspects of the merger agreement struck in April but which the billionaire has been seeking to abandon since July.

Later on Tuesday, the Tesla chief also requested a delay to the trial, which is scheduled for October in the Delaware Court of Chancery.

Zatko, known in cyber security circles as “Mudge”, was also served with a subpoena from Musk’s team over the weekend to testify in the case.

Until now, Musk’s legal efforts to extricate himself from the deal have centered on the scale of Twitter’s fake user problem. Monday’s letter outlines a much broader argument, suggesting that if Zatko’s claims are true, they give the billionaire the right to terminate the merger agreement on multiple points.

Twitter’s lawyers responded on Tuesday, stating the notice of termination was “invalid and wrongful under the agreement”. They said the notice was based solely on statements made by a third party that “are riddled with inconsistencies and inaccuracies”.

Zatko, who was fired by Twitter earlier this year and is now represented by Whistleblower Aid, filed a complaint to the US authorities alleging that the social media company misled users and regulators about its cyber security defences.

Zatko alleged Twitter breached its obligations under a 2011 agreement with the Federal Trade Commission to protect user data and failed to disclose material information about security vulnerabilities to investors and its board. As a result, Musk’s legal team argues the platform could face a large fine, with “material, if not existential, consequences to Twitter’s business”.

The social media site said in response that it had “breached none of its representations or obligations under the agreement, and Twitter has not suffered and is not likely to suffer a company material adverse effect”. It has consistently defended its disclosures on fake users from Musk’s arguments that it has under-reported the number of spam and fraudulent accounts.

Zatko’s complaint was filed to the US Securities and Exchange Commission, the Department of Justice and the FTC as well as to members of Congress on July 6, two days before Musk announced he wanted to back out of his deal with Twitter.

Musk’s lawyers wrote: “The facts supporting these breaches, which were withheld from the Musk parties but known to Twitter as of the date of the merger agreement and at the time of the July 8 termination notice, provided additional bases to terminate the merger agreement. ”

Ann Lipton, business law professor at Tulane University in New Orleans, said Musk would have to show that the problems alleged by the former security chief “would have a significant, long-term effect on Twitter’s finances”.

“He is relying a lot on the Zatko complaint, but Zatko actually agrees with Twitter that the [audience] metric is accurately reported. Since [user numbers are] almost everything that has been litigated up until now, it all puts Musk in an awkward position.”

Twitter has long faced scrutiny over its cyber security controls, including after hackers peddling a crypto scam took over the official accounts of hundreds of public figures and companies in July 2020. Zatko was brought in by former chief executive Jack Dorsey in the wake of the hack .

Musk’s legal team last week issued a subpoena to Dorsey, who stepped down as Twitter’s chief in November, seeking any communications between him and executives over the handling of fake accounts.

Dorsey is just one of dozens of Silicon Valley executives who may be drawn into the spiraling legal battle, as the billionaire and the platform search for evidence to support their cases.

Additional reporting by Hannah Murphy

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