Elon Musk wants to delay his upcoming trial with Twitter over a whistleblower’s allegations, the latest in a legal saga over the billionaire’s attempt to back out of his contract to buy the social media company.
Twitter and Musk have been locked in a legal battle since this summer, when he changed course and said he wasn’t going to purchase the company for a promised $44 billion. Twitter sued Musk for breach of contract, and he countersued alleging fraud and breach of contract.
Last week, The Washington Post and CNN were the first to report on the new whistleblower complaint, which alleged that the company has “extreme, egregious deficiencies” in its security practices. Zatko, also known as Mudge, alleged that Twitter violated the terms of a settlement agreement with the Federal Trade Commission by falsely claiming that it had a solid security plan. However, his complaint contains little hard evidence on bots and spam, a central component of the argument Musk has used to back out of his agreement.
Twitter has pushed back on Zatko’s allegations, saying last week that they appeared to be “riddled with inaccuracies.”
But Musk’s lawyers sent a letter to Twitter, dated Monday, that pointed to the allegations from the company’s former head of security, according to the filings. It asserted that if the claims are true, Twitter has breached the merger agreement. The company filed a document with the Securities and Exchange Commission acknowledging it had received the letter.
Twitter said it was committed to closing the deal under the original price and terms, in a statement issued by spokesman Brenden Lee.
“We have not breached any of our representations or obligations under the Agreement, and have not suffered and are not likely to suffer a Company Material Adverse Effect," he said, referring to a significant change that would enable Musk to back out.
Musk’s lawyers have already cited the whistleblower complaint during a hearing last week, as well as subpoenaing Zatko for a deposition.
Zatko “was not some low-level employee,” Musk attorney Alex Spiro said during the hearing last week. “He was one of the top handful of officers in the company.”
In a response to Musk’s lawyers, Twitter reiterated that it intends to move forward with the deal and says Musk’s new termination letter 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.”
Musk’s lawyers called the letter to Twitter an “additional termination notice” in case its first notice was found invalid.
Musk’s team cites the FTC settlement, Twitter’s allegedly lax security and other allegations made in Zatko’s complaint as reasons to end the deal.
“The Zatko Complaint alleges far-reaching misconduct at Twitter — all of which was disclosed to Twitter’s directors and senior executives, including Parag Agrawal — that is likely to have severe consequences for Twitter’s business,” Musk’s lawyers wrote in the letter to Twitter, referring to the company’s chief executive.
The saga between Musk and Twitter began this year, when the billionaire revealed he had taken a large stake in the company and launched a hostile takeover attempt to buy it. Twitter at first seemed to push back against the offer, but eventually the company agreed to a deal that would pay $54.20 per share.
Musk, who has more than 104 million followers on Twitter, has long used the site to make announcements about his companies, Tesla and SpaceX, share memes and extol his opinions. He initially said he wanted to ensure Twitter promoted free speech online.
But the deal soon became rocky. His offer came around a time when the tech-heavy Nasdaq composite index went through a steep decline. It became apparent that not only had Musk lost billions of dollars, but he also might be overpaying for Twitter by billions of dollars as well.
Eventually, Musk publicly raised concerns that Twitter had misled him about the number of bots and fake accounts on the site. Twitter has pushed back on these allegations and said it has provided Musk with sufficient company information.
Legal experts have said it will be difficult for Musk to walk away from the Twitter deal with no financial consequences.
Twitter is still marching forward with the deal, and shareholders are scheduled to vote on it next month.
In the run-up to the trial, Twitter asked for an expedited schedule, which led to the case being compressed to a week in October.
“This very public dispute harms Twitter with each passing day Musk is in breach,” the firm said. “No public company of this size and scale has ever had to bear these uncertainties.”
Faiz Siddiqui contributed to this report.