Elon Musk’s Lawyers Say Twitter Whistle-Blower Allegations Provide Additional Justification for Nixing $44 Billion Deal

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Nearly two months ago, Elon Musk told Twitter he wanted to bail on his deal to buy the social network, based largely on his assertion that Twitter wasn’t disclosing the true scope of its spam and bot problem.

Now Musk’s lawyers have cited allegations made by a former Twitter exec, whom the company fired this year, as providing “additional and distinct bases” to terminate the tech mogul’s agreement to buy Twitter for $44 billion.

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“Although the Musk Parties believe this termination notice is not legally necessary to terminate the Merger Agreement because they have already validly terminated it pursuant to the July 8 Termination Notice, the Musk Parties are delivering this additional termination notice in the event that the July 8 Termination Notice is determined to be invalid for any reason,” an Aug. 29 letter from Musk’s lawyers to Twitter chief legal officer Vijaya Gadde said. The letter was disclosed in an SEC filing.

Twitter’s legal team, in an Aug. 30 response to the Musk lawyers, said, “As was the case with your July 8, 2022, purported notice of termination, the purported termination set forth in your August 29, 2022, letter is invalid and wrongful under the Agreement.”

In July, Peiter “Mudge” Zatko, who served as Twitter’s head of security before he was fired in January 2022, filed a complaint with the SEC accusing Twitter of misleading shareholders, alleging it failed to disclose “extreme, egregious deficiencies” in its security practices. He also alleged in an FTC complaint that the company violated a 2010 agreement with the agency to protect user data.

Among other things, Zatko also alleged that Twitter’s platform is built in significant part on misappropriated third-party intellectual property; that Twitter gave in to demands made by the Indian government that its agents be hired by the company and given access to Twitter user information; and that Twitter is vulnerable to systemic disruption resulting from data-center failures or malicious actors, something CEO Parag Agrawal and other top execs ignored and sought to obfuscate.

“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 as of that date and provide additional bases to terminate the Merger Agreement today if the Musk Parties’ termination of the Merger Agreement pursuant to the July 8 Termination Notice is determined to be invalid for any reason,” Musk’s lawyers said in the letter.

In its response, Twitter lawyers said that Zatko’s statements “are riddled with inconsistencies and inaccuracies and lack important context. Contrary to the assertions in your letter, Twitter has 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. Twitter intends to enforce the Agreement and close the transaction on the price and terms agreed upon with the Musk Parties.”

Musk and Twitter are locked in a legal battle playing out in the Delaware Court of Chancery, in which Twitter is seeking to hold Musk to the original buyout terms. The trial is set to commence Oct. 17 and run for five days.

On July 8, the Musk legal team informed the company he wanted to nix the deal over Twitter’s alleged inability to prove the claim that less than 5% of active users are spam bots or fake accounts. Twitter sued Musk on July 12, arguing that Musk is looking for an excuse to bow out of the deal after his personal net worth fell with the drop-off in Tesla’s stock price.

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