Musk cites Twitter whistleblower claims as new justifications for backing out of deal

By Brian Fung and Clare Duffy, CNN Business

Elon Musk is formally citing allegations leveled by Twitter whistleblower, Peiter “Mudge” Zatko, as justification for terminating a $44 billion acquisition deal for the social media company.

On Monday, Musk’s legal team sent a letter to Twitter highlighting Zatko’s claims, which were first reported by CNN and The Washington Post last week. Zatko served as Twitter’s head of security from November 2020 until his firing in January.

Musk’s letter, which was disclosed in a Securities and Exchange Commission filing, points to Zatko’s allegations that Twitter is in violation of its 2011 consent order with the Federal Trade Commission; that the company suffers from grave security vulnerabilities; that it has violated intellectual property rights; and that it consented to hiring Indian government agents under pressure by the country.

Musk’s legal team claims that the allegations, if true, represent breaches of Twitter’s side of the acquisition bargain and should allow him to exit the deal. The letter claims that Twitter’s alleged misrepresentations to its board and regulators — and investigations that could result — has or could constitute a “material adverse effect” that would allow him to walk away, per the original contract.

The justifications outlined in the Aug. 29 letter are in addition to, not instead of, the reasons Musk cited when he first announced in July that he was accusing Twitter of violating the agreement and seeking to withdraw, according to the letter.

Twitter sued Musk days after his July termination letter, accusing him of breaching the agreement and asking a Delaware court to force the billionaire to go through with the deal. The case is set to go to trial in October.

In direct response to Musk, Twitter sent its own letter on Tuesday rejecting the billionaire entrepreneur’s latest attempt to scrap the deal, calling it “invalid and wrongful.” Twitter has criticized Zatko and broadly defended itself against his allegations.

Musk’s letter, Twitter wrote, “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 company said it “has not suffered and is not likely to suffer a Company Material Adverse Effect” and added that it still intends to close the deal at the agreed upon price and terms. Twitter responded to a request for comment from CNN pointing to its letter to Musk.

The new termination letter is the latest sign of the impact the whistleblower disclosure is likely to have on the legal battle. Zatko was subpoenaed by Musk’s legal team and is expected to appear for a deposition on Sept. 9.

“Mr. Zatko will comply with his legal obligations of that subpoena and his appearance at the deposition is involuntary,” Zatko’s attorneys, Debra Katz and Alexis Ronickher, said in a statement Monday. “He did not make his whistleblower disclosures to the appropriate governmental bodies to benefit Musk or to harm Twitter, but rather to protect the American public and Twitter shareholders.”

Musk lawyer Alex Spiro told CNN last week that they had subpoenaed Zatko in the case even before his whistleblower complaint was made public. In a court hearing in the case last Wednesday, Spiro mentioned Zatko multiple times. Spiro suggested during the hearing that the billionaire’s team does not trust Twitter’s estimate for spam accounts and monetizable daily active users (mDAU), a key metric it provides to investors, and said Musk’s team is requesting information that would allow them to test the measurements.

Zatko is also expected to testify at a Senate hearing on September 13, something Musk’s letter also points to.

The-CNN-Wire
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