Elon Musk’s legal counsel has been trying to find ways for Musk to renegotiate his $44 million deal to purchase social media platform Twitter. Musk’s attorneys filed an extra notice on Tuesday to disclose to the SEC. The additional notice cited claims made by Peiter Zatko (ex-security chief) as further reasons to end the deal.
After a July 8, in which the company was accused of not complying with contractual obligations, the Tuesday notice was issued. Musk is now citing claims made by Zatko – who has become known as the “Twitter Whistleblower” – as a justification for backing out of the deal.
“Allegations regarding certain facts, known to Twitter prior to and as of July 8, 2022, but undisclosed to the Musk Parties prior to and at that time, have since come to light that provide additional and distinct bases to terminate the Merger Agreement,” Mike Ringler, Musk’s legal representative from Skadden, Arps, Slate, Meagher & Flom, wrote in a letter to Twitter’s legal chief, Vijaya Gadde, CNBC reported.
Twitter’s legal department quickly responded by stating that Musk was terminated because of an invalid or wrongful acquisition agreement.
“It 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,” the letter written by William Savitt of Wachtell, Lipton, Rosen & Katz law firm said. Your letter claims that Twitter has not violated any representations or obligations in the Agreement. Twitter also stated that it has not experienced and will not experience a Company Material Adverse Event.
Twitter faces dual challenges
Twitter now has to address the Musk threat as well as Zatko’s accusations. The motives and accusations of these two men may not be the same. The social media platform, however, is still facing two separate challenges – and will be forced to respond to each.
Charles King, a technology analyst at Pund-IT said that it was difficult to determine whether Musk or the whistleblower are a threat to Twitter.
This could change over the next few months.
“We are heading to Delaware Chancery Court October, the Twitter vs. Elon Musk Case is just around the corner, with both legal teams getting prepared for this unique battle over the $44 Billion Twitter deal,” stated Dan Ives (Managing Director of Equity Research at Wedbush Securities), via email.
Ives said, “A potential major development…has been whistleblower case of former security chief Peiter ‘Mudge’ Zatko who could provide Musk with a much-needed small win.”
Musk’s legal team subpoenaed Zatko for deposition in their legal battle against Twitter. In his whistleblower disclosure of 200 pages, Zatko claimed that Twitter had serious security and privacy vulnerabilities. This could expose users to danger and can pose a national security threat due to the data issues.
Ives stated, “Importantly Zatko claims Twitter doesn’t have an accurate count on the number of fake and spam accounts it has.”
Ives also noted that the Twitter case is undergoing a lot of legal back-and-forths. Musk could be able to win the Zatko timing and development, complicating the Twitter case.”
Twitter: What is it all about?
Twitter’s board of directors now seems intent on holding Musk to his original agreement – but whether the deal is forced through or not, changes are likely coming to the platform.
King said to the reporter, “Despite all his protestations their case seems pretty strong.” Musk may have to sell the company to make major changes to Twitter’s leadership, management and staff. But that assumes that the target employees would be still available. I think that most Twitter employees would rather work for Musk than bail out.
Twitter might face problems in the future even if Musk manages to exit the deal.
King stated, “The whistleblower has a unique situation.” Twitter may have to change the way that it handles security access and user accounts, depending on how Zatko’s testimony is received by Congress.
It could also be considered a benefit for users and the company.
King noted that this assumes there are substance to whistleblowers’ complaints, but King added, “It’s not entirely clear at the moment.”