Elon Musk is pushing through another legal notice to quash his $44 billion Twitter acquisition deal that has lingered for months since it was initiated, due to concern that the platform is highly made up of spam accounts.
Musk’s legal team filed a notice on Tuesday to terminate the deal, citing additional reasons based on former Twitter’s head of security, Peter Zatko’s allegations of “extreme, egregious deficiencies” by the social media company related to its handling of user information, spam bots and content moderation.
“These allegations, if true, demonstrate that Twitter has breached the following provisions of the merger agreement, thereby giving the Musk parties the right to terminate the merger agreement,” Musk’s lawyers said in a letter sent to Twitter.
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The latest notice is building on the one filed by Twitter earlier on July 8, with the US Securities and Exchange Commission, which seeks to terminate the deal on the ground that Twitter has not been true to the acquisition agreement.
In his allegations, Zatko, a veteran hacker and security expert known as “Mudge”, says Twitter has deceived users, board members and the federal government to believe that the company’s security measures are stronger than it actually is.
“Twitter is grossly negligent in several areas of information security,” Zatko wrote in an analysis written in February that was included in the complaint. “If these problems are not corrected, regulators, media and users of the platform will be shocked when they inevitably learn about Twitter’s severe lack of security basics.”
Musk’s legal team cites these allegations as complement to his original reason 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.
The letter said Zatko’s allegations constituted a “company material adverse effect” that substantially altered the business’s value and therefore rendered the deal invalid. Among the many irregularities cited against Twitter are; not complying with data privacy laws and regulations, not complying with an agreement with the US Federal Data Commission in 2011 to better protect users’ data.
The letter added that Zatko “alleges far-reaching misconduct at Twitter—all of which was disclosed to Twitter’s directors and senior executives, including (CEO) Parag Agrawal—that is likely to have severe consequences for Twitter’s business.”
It said that Twitter’s CEO, Parag Agrawal, breached the agreement by failing to disclose to the board an internal report prepared by Zatko at the beginning of 2022. The notice also states that Twitter had committed fraud by not disclosing the privacy, data protection, safety and cybersecurity risks raised by Zatko, which gives Musk the right to “rescission” – or ripping up the deal contract.
In response, Twitter said in a letter sent to Musk’s legal representatives that his notice to terminate the deal based on Zatko’s allegations is “invalid and wrongful under” the 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.
“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’s legal team added that Musk’s latest notice to terminate the deal is “invalid for the independent reason that Mr. Musk and the other Musk Parties continue to knowingly, intentionally, willfully, and materially breach” the acquisition agreement.
But Ringler said in the letter that the latest termination notice is “not legally necessary” to end the merger deal, but is being delivered in case the July 8 filing is “determined to be invalid for any reason.”
However, the latest development could give Musk an edge. The Guardian quoted Brian Quinn, professor at Boston College Law School, saying that Twitter would have to update its original lawsuit and that Musk would seek to delay the trial as a result, having originally argued for a trial date next year to give him more time to prepare his case.
“When Twitter amends its complaint it’s likely that Musk will point to the amended complaint as a reason to delay the trial. And the court, my guess is, will seek to accommodate that request,” he said.