Twitter whistleblower could help Musk by adding ‘volatility’ to legal battle

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WILMINGTON, Del., Aug. 23 (Reuters) – A whistleblower’s complaint that Twitter Inc (TWTR.N) has misled federal regulators about the company’s security risks could provide Elon Musk with new ammunition in his bid to sell the company for $ 44 billion to buy .

Until now, Musk’s legal battle with Twitter has mostly revolved around claims that the company misled the billionaire about the number of bot and spam accounts on its platform.

The whistleblower complaint from Twitter’s former security chief Peiter Zatko gives Musk new angles to pursue in his legal battle, such as claims that Twitter has failed to disclose security and data privacy vulnerabilities.

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It provides “another basis for fraud,” said Ann Lipton, a professor at Tulane Law School.

It’s not clear if or how Musk’s team will use the whistleblower’s information, although Musk’s attorney Alex Spiro with Quinn Emanuel Urquhart & Sullivan said on Tuesday Zatko had received a subpoena.

“We found his departure and that of other key employees curious in light of what we found,” Spiro said in a statement.

Legal experts said the whistleblower complaint created uncertainty in Musk’s confrontation with Twitter, rather than dramatically transforming a case that corporate law specialists said Twitter is in favor of.

“Volatility comes in handy when you’re not playing a strong hand. It creates an opportunity that something crazy could happen,” Eric Talley, a professor at Columbia Law School, said of the whistleblower complaint.

Shares of Twitter fell about 5.9% in late trading at $40.44 a share.

‘ADD TEXTURE’

Musk, the world’s richest person and the chief executive of electric vehicle manufacturer Tesla Inc (TSLA.O), told Twitter in July that he would terminate the agreement to buy the company for $54.20 a share.

Musk accused Twitter of fraudulently misrepresenting the true number of spam and bot accounts on its social media platform, which the company estimates at 5% in company records. Musk said he relied on those files when he offered to buy the company.

Twitter and Musk have since sued each other, with Twitter asking a judge of the Delaware Court of Chancery to order Musk to close the deal. A trial begins on October 17.

An image of Elon Musk can be seen on a smartphone superimposed on printed Twitter logos in this image, taken April 28, 2022. REUTERS/Dado Ruvic/Illustration/

On Wednesday, Chancellor Kathaleen McCormick will hear arguments from the two sides about access to documents as part of the discovery process. Legal experts said Musk could raise the whistleblower complaint and point out how his team might use the allegations.

Zatko’s whistleblower complaint, made public on Tuesday, alleged that Twitter falsely told regulators it had a solid security plan.

Zatko said he warned colleagues that half of the company’s servers were running outdated and vulnerable software, according to an edited version of his complaint. read more

Twitter Chief Executive Parag Agrawal told employees in a memo that the company is reviewing the claims. “What we have seen so far is a false story that is full of inconsistencies and inaccuracies and presented without significant context,” Agrawal said, according to a CNN report.

Claims that Twitter failed to disclose security and privacy risks may be easier for Musk to prove than accusations that Twitter misrepresented the number of spam accounts, legal experts say.

To win the spam claim, Musk must demonstrate that he trusted Twitter’s revelations about spam accounts.

Business deal specialists have said this will be difficult, as Musk cited spam as the reason for buying the company.

By contrast, Zatko’s claims that the company withheld security information from investors and regulators could be classified as an omission, meaning Musk would not have to rely on the company’s disclosures.

However, Musk would still have to prove that Twitter’s supposedly weak defense against hackers was a material risk that was not disclosed to investors.

And to walk away from the acquisition without paying a $1 billion termination fee, he would have to show that the omission had a material adverse effect on Twitter.

A material adverse effect (MAE) is an event that significantly reduces the long-term value of an acquisition.

Talley said whether Zatko’s claims amount to a MAE could be a problem for the trial.

“This doesn’t open a brand new front,” Talley said. “It adds texture to existing ones.”

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Editing by Noeleen Walder and Deepa Babington

Our Standards: The Thomson Reuters Trust Principles.

Tom Hals

Thomson Reuters

Award-winning reporter with over two decades of experience in international financial news in Asia and Europe.

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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