Elon Musk cites new reasons to scrap Twitter deal, as subpoenas fly
By Lauren Hirsch
Elon Musk’s lawyers told Twitter in a letter on Monday that the recent whistleblower report by Pieter Zatko, Twitter’s former security chief, could provide additional reasons for Musk to walk away from his $44 billion acquisition agreement.
The letter, revealed in a regulatory filing on Tuesday, could be a precursor to the billionaire seeking to incorporate Zatko’s allegations in his arguments for a coming trial over whether Musk must complete the purchase.
In a related development, Musk’s lawyers disclosed in a court filing Monday that they had subpoenaed Zatko. The subpoena is one of more than 100 that lawyers for Musk and Twitter have issued ahead of the trial, scheduled for October.
Zatko has accused Twitter of years of “material misrepresentation and omissions” about security and privacy protections built into its platform. Twitter executives have strongly rejected Zatko’s claims.
Musk has said that Twitter’s public disclosures about the number of fake accounts on the platform — which he relied upon when he agreed to purchase the company — were misleading, and were the basis of his initial rationale for walking away from the deal, expressed in a letter to Twitter in July.
Twitter is suing Musk to force him to close the transaction. In its response to Musk’s latest letter, also disclosed in a regulatory filing on Tuesday, Twitter’s lawyers argued that Musk’s basis for terminating the deal is “invalid and wrongful.”
But Musk’s most recent letter suggests that the billionaire may seek permission from the Delaware Chancery Court, which is overseeing the legal dispute, to amend his countersuit against Twitter. He could also push for more time for discovery, demanding more documents and information from Twitter.
It would be up to the judge overseeing the trial, Kathaleen St. J. McCormick, to allow him to do so. It is not clear that she would do so, given the trial is less than two months away.
In the letter, Musk’s lawyers write that Zatko’s allegations, if true, constitute a “material adverse effect” on the company, allowing Musk to break the agreement. The deal requires Twitter to comply with federal laws, and Zatko has accused it of being in breach of a 2011 consent decree with the Federal Trade Commission over its security practices. This would have “existential” consequences for Twitter’s business, according to the letter.
The letter also said that Twitter should have disclosed security weaknesses raised by Zatko in its documents filed with the Securities and Exchange Commission. The fact it did not do so constitutes fraud, the letter said.
Several lawmakers have called on the FTC to investigate Zatko’s claims. He is scheduled to testify before the U.S. Senate Judiciary Committee in September.
If McCormick does not allow Musk to amend his countersuit, another, more unconventional option remains. He could lodge a federal lawsuit arguing that he has the right to walk away from the deal under laws governing the sale of securities. And he could ask that judge to put the deal on hold until the case is settled. But the bar for federal securities fraud claims is high, and taking such action would risk angering the Delaware court already overseeing Musk’s fight with Twitter.