Elon Musk is adding allegations from Twitter security whistleblower Peiter "Mudge" Zatko to his list of reasons for pulling out of the $44 billion Twitter acquisition he proposed back in April.
Musk's messy acquisition bid has taken numerous twists and turns since April, with the Tesla and SpaceX CEO ultimately deciding that he didn’t want to buy Twitter after all, citing a lack of clarity over Twitter's bot data. However, Twitter has refused to recognize Musk's termination bid, pursuing legal action to force Musk to honor his original offer -- a trial is currently scheduled for October 17.
In a fresh filing with the Securities and Exchange Commission (SEC), Musk's legal team provided an additional notice of termination of the deal, citing revelations made by Twitter's former head of security last week. Zatko, who was fired by Twitter back in January after a little more than a year in the role, said that the social network deceived everyone about the strength of its security protocols, noting that he witnessed "egregious deficiencies, negligence, wilful ignorance, and threats to national security and democracy" at the company. Zatko also said that Twitter tried to conceal its shortcomings from regulators and investors.
While it's not clear to what extent Zatko's whistleblowing efforts may boost Musk's attempts to renege on his acquisition offer, they certainly give him more ammunition. Yesterday, news emerged that his legal team had subpoenaed Zatko, seeking evidence related to spam, security vulnerabilities, alleged foreign spies working at Twitter and basically anything that might help support Musk's case.
As the SEC filing shows, Musk's legal team is trying to bolster their position in the event that their previously submitted termination notice "is determined invalid for any reason." So basically, if Musk's arguments that Twitter has undercounted its bot data doesn't stick, it wants more factors to fall back on.
"The Zatko Complaint alleges far-reaching misconduct at Twitter -- all of which was disclosed to Twitter’s directors and senior executives, including Parag Agrawal (Twitter's CEO) -- that is likely to have severe consequences for Twitter’s business," Musk's legal representative Mike Ringler wrote. "For example, Mr. Zatko alleges that Twitter is in material noncompliance with both its obligations under a 2011 FTC consent decree and its general obligations under data privacy, unfair trade practice, and consumer protection laws and regulations."
Ringler pointed to other allegations made by Zatko, including one that Twitter is "uniquely vulnerable to systemic disruption" resulting from data center failures or malicious actors, which Twitter's leadership team have allegedly tried to hide. He also highlighted Zatko's allegation that Twitter gave in to demands made by the Indian government that Twitter hire its agents and be given access to user data.
In short, Musk and his legal team are now looking for more ways that Twitter may have breached the terms of their merger agreement -- and it really needs Zatko to help.
Separately, Twitter posted a response to Musk's latest SEC filing, somewhat predictably countering the reasons provided by Musk. Twitter's legal representative William Savitt said that Musk's fresh notice of termination is "based solely on statements made by a third party that, as Twitter has previously stated, are riddled with inconsistencies and inaccuracies and lack important context."
"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," Savitt wrote. "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."