Elon Musk Says Twitter’s $7.75 Million Severance Payment to Whistle-Blower Is Another Reason He’s Justified in Nixing Deal

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Elon Musk keeps finding new reasons why he believes he can back out of his $44 billion agreement to buy Twitter.

In a Sept. 9 letter to Twitter, Musk’s lawyers called out the social network’s separation agreement with Peiter “Mudge” Zatko — its former head of security who was fired in January — under which Twitter made severance payments to Zatko and his counsel totaling $7.75 million.

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That, according to Musk’s legal team, violated a provision of the acquisition agreement under which Twitter agreed to not “grant or provide any severance or termination payments or benefits to any Company Service Provider other than the payment of severance amounts or benefits in the ordinary course of business consistent with past practice” without first getting approval from Musk. The definition of “Company Service Provider” includes Twitter’s former employees, per the letter.

“Twitter did not seek Defendants’ consent… before making this payment nor was this payment disclosed to Defendants,” the letter, disclosed in an SEC filing Friday, said. “In fact, Defendants only learned of this payment when Twitter filed the separation agreement with the court on September 3, 2022.”

Zatko, whom Twitter has characterized as a disgruntled ex-employee, has alleged in SEC and FTC complaints that Twitter concealed ”extreme, egregious” lapses in security and privacy practices, among other problems.

Musk’s lawyers cited Zatko’s allegations in a letter last month as additional evidence that the multibillionaire’s pact to buy Twitter was null. In July, he told Twitter he was exiting the deal because, Musk alleged, the company could not prove its claim that spam and fake accounts are less than 5% of active users.

[UPDATE: In a letter to Musk’s lawyers dated Sept. 12, disclosed in an SEC filing, Twitter’s lawyers rejected Musk’s argument about the Zatko settlement as “invalid and wrongful under the Agreement” and asserted that “Twitter has breached none of its representations or obligations under the Agreement.” According to the Twitter attorneys, “As was the case with each of your prior purported terminations, the Musk Parties’ third purported termination is invalid for the independent reason that Mr. Musk and the other Musk Parties continue to knowingly, intentionally, willfully, and materially breach the Agreement.”]

Twitter in July sued Musk, demanding that the CEO of Tesla and SpaceX make good on his agreement to buy out the social media company for $54.20/share. A judge in the Delaware Court of Chancery set a five-day trial in to hear Twitter’s case against Musk starting Oct. 17. This week, the judge presiding over the case ruled that Musk may add allegations from Zatko’s complaint to his countersuit but denied Musk’s request to delay the start of the trial until November.

Musk, who is Twitter’s largest single shareholder with a 9.6% stake, was originally enthusiastic about the prospect of owning Twitter, tossing out ideas like authenticating the identity of all users and charging businesses to use the social network. Twitter’s lawyers allege Musk got cold feet after his personal net worth dropped with the decline in Tesla’s stock price.

During a hearing in the Delaware court Tuesday, a Twitter lawyer read aloud a text message Musk sent to a Morgan Stanley banker on May 8 that said about the acquisition agreement, “Let’s slow down just a few days. Putin speech tomorrow is extremely important. It won’t make sense to buy Twitter if we’re heading into World War III.”

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