Elon Musk Cites Twitter Whistleblower in New SEC Filing in Effort to Terminate Deal

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COMBO-US-INTERNET-COURT-MERGER-TWITTER-MUSK - Credit: Jim Watson/AFP/Getty Images
COMBO-US-INTERNET-COURT-MERGER-TWITTER-MUSK - Credit: Jim Watson/AFP/Getty Images

Elon Musk cited the claims of Twitter whistleblower Peiter Zatko in a new filing with the Securities and Exchange Commission Tuesday, Aug. 2 as he attempts to back out of his deal to buy the social media company for $44 billion.

Zatko, Twitter’s former head of security, claimed in a recent whistleblower complaint that the social media platform had major security deficiencies and that it prioritized user growth over combatting spam (his allegations were first covered in The Washington Post and CNN). In the new filing, Musk’s lawyers cited Zatko’s complaint, saying it “alleges far-reaching misconduct at Twitter… that is likely to have severe consequences for Twitter’s business.”

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But as The New York Times notes, the SEC filing does not necessarily mean Musk and his legal team will be able to use Zatko’s complaint in their upcoming legal battle with Twitter over the merger agreement. While Zatko’s complaint touched on some of the issues Musk has raised about spam bots and fake accounts on Twitter, they are not exactly the same. Musk’s lawyers may need to secure permission from the judge to amend his lawsuit if they are to incorporate Zatko’s complaint.

Zatko — the former security chief who was previously a successful hacker known as “Mudge” — filed his complaint with the Securities and Exchange Commission last month. The news coincidentally broke one day after Elon Musk subpoenaed Twitter co-founder and former CEO Jack Dorsey, seeking information on bots and spam accounts as he continues to try to back out of his $44 billion deal to buy the social media company.

In trying to ditch the deal he agreed to earlier this year, Musk has claimed that Twitter made “false and misleading representations” about fake accounts. Twitter, in turn, has rebuffed these claims, arguing instead that Musk is trying to get out of the deal because the stock price of Twitter — and other big tech companies, like Musk’s Tesla — plummeted about a month after he agreed to purchase the company.

The heaviest allegations in Zatko’s complaint ultimately involve Twitter’s cyber-security infrastructure, which Zatko claimed was out-of-date and vulnerable to hacks (Zatko himself joined Twitter in 2020 after a high-profile attack targeted major accounts like Barack Obama, Donald Trump, and Musk). But as far as fake accounts go, Zatko alleged that Twitter’s obsession with user growth far outweighed its interest in combatting spam.

The company allegedly offered executives bonuses up to $10 million to boost user growth and nothing for tackling spam. And Zatko even claimed that Twitter CEO Parag Agrawal was “lying” when he tweeted in May that the company was “strongly incentivized to detect and remove as much spam as we possibly can.”

A Twitter spokeswoman, Rebecca Hahn, rebuffed Zatko’s allegations to The Post, saying he was let go from the company earlier this year “for poor performance and leadership” (Zatko has claimed he was fired after telling Twitter’s board its protections for sensitive user data were weaker than they thought). Regarding spam accounts, Hahn said the company “fully stands by” its SEC filings, where it’s consistently estimated that less than five percent of monetizable daily users are fake.

Musk’s insistence that there are more spam accounts on Twitter than its 5 percent estimate is, of course, at the heart of his new subpoena of Dorsey (Dorsey stepped down as Twitter CEO last November but remained on the company’s board until May, about a month after the Musk/Twitter deal was struck). His legal team is asking the former CEO for all docs and communications related to the merger agreement, plus those “reflecting, referring to, or relating to the impact or effect of false or spam accounts on Twitter’s business and operations” going back to January 2019.

Musk is also trying to get hold of any info about the metrics Twitter uses to gauge user engagement with advertisements on the platform. This includes the company’s own proprietary metric and monetizable daily active users, another supposed sticking point for Musk, who’s claimed it’s not a good indicator of how much ad revenue the company generates nor a sufficient indicator of future revenue.

The flurry of subpoenas from Musk’s team comes after Twitter issued its own earlier this month. They were sent out to Musk’s associates, including some major investment firms and venture capitalists, like Joe Lonsdale and David Sacks (the two men did not exactly take kindly to the subpoenas, with Sacks tweeting an image of a middle finger, and Lonsdale calling it part of a “giant harassing fishing expedition”).

The fate of the Musk/Twitter deal will be decided over a five-day trial in Delaware Chancery Court, starting on October 17.

This story was updated on 8/30/22 at 1:02 p.m. with news about Musk’s new SEC filing that cites Zatko’s whistleblower complaint.

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