Lawyers for Elon Musk and Twitter Inc. are sparring over how a whistle-blower’s accusations could affect the outcome of Musk’s proposed $44 billion takeover of the social media platform.
In a securities filing on Tuesday, lawyers for Musk said the allegations by Peiter Zatko, Twitter’s ex-head of security, including claims of “egregious deficiencies” in the platform’s defenses against hackers and privacy issues, meant that Twitter had breached the terms of the merger agreement.
Shortly after, Twitter’s lawyers responded with their own filing, saying Musk’s case for termination of the deal is “invalid and wrongful.”
Musk has been attempting for months to try and extract himself from the takeover of Twitter, initially claiming that the company’s user figures are inflated by millions of robot accounts. But Zatko’s claims, which emerged last week, have given Musk’s side new ammunition. Zatko, who was fired from Twitter earlier this year, raised questions about severe shortcomings in the social media company’s handling of users’ personal data, including running out-of-date software. He also said executives had withheld information about breaches and lack of protections for user data.
Twitter reiterated on Tuesday that Zatko’s complaint is “riddled with inconsistencies and inaccuracies and lacks important context.” Twitter argues it hasn’t breached any of its obligations and it intends to enforce the deal and close the transaction “on the price and terms agreed upon.”
Twitter shares were down less than 1% Tuesday morning in New York at $39.72, far below Musk’s offer price of $54.20.
Lawyers for both Musk and Twitter have subpoenaed Zatko, who said the social-media platform’s officials didn’t know or care to find out how many accounts were spam or robot accounts.
Twitter, which has maintained that spam and bots make up fewer than 5% of accounts, sued Musk in July to force him to complete his proposed acquisition. Since then, more than 100 people, banks, funds and other firms have been subpoenaed in the suit, with a trial scheduled to begin Oct. 17 in Delaware.
The new findings add to Musk’s claims, according to the letter from his lawyers published Tuesday, showing that Twitter is in “material noncompliance” with obligations around data privacy and consumer protection laws and that the company is vulnerable to data center failures and malicious actors.
Letters such as the one sent on Tuesday often precede a request to a chancery judge to allow court filings to be amended. Judge Kathaleen St. J. McCormick still must decide whether Musk can amend his counterclaims in the Twitter case to add Zatko’s allegations as reasons the deal can be nixed.
Under Delaware law, a judge’s power to grant such amendments is “liberally granted, unless, in a narrowly construed exception, there is inexcusable delay and prejudice to the defendant” according to a 2020 chancery ruling in the case of Posco Energy Ltd. v FuelCell Energy Inc.
Zatko’s attorneys said he didn’t make his whistle-blower disclosures to benefit Musk or to harm Twitter, “but rather to protect the American public and Twitter shareholders.”
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