Elon Musk’s Lawyers Subpoena Twitter Whistle-Blower
Elon Musk’s lawyers have subpoenaed Twitter’s former security chief, Peiter Zatko, they disclosed in a court filing Monday, signaling that Mr. Musk may try to use Mr. Zatko’s accusations of false statements and security shortcomings at Twitter as part of his attempt to break off an agreement he made to buy the social media company for $44 billion.
Mr. Zatko, who goes by the nickname Mudge in the security community, said in a whistle-blower complaint to regulatory agencies and the Justice Department that Twitter had misled the public, and Mr. Musk, about its security practices. Twitter’s executives strongly rejected the claims, which came to light last week.
Mr. Musk and Mr. Zatko have both accused Twitter of fraud, but their allegations are not the same, the DealBook newsletter reports. Mr. Musk has said that Twitter’s public disclosures about the number of fake accounts on the platform — which he relied upon when he agreed to purchase the company — were misleading. Mr. Zatko has accused Twitter of years of “material misrepresentation and omissions” about security and privacy protections built into its platform.
The subpoena is one of more than 100 that lawyers for Mr. Musk and Twitter have collectively issued ahead of their trial in Delaware Chancery Court in October over whether Mr. Musk needs to abide by the acquisition agreement. (The Chancery Daily website has kept a running list.) The legal teams have sent a blitz of subpoenas to banks, investors and even each other.
Mr. Musk’s adoption of Mr. Zatko’s claims could represent a turning point in the litigation over the Twitter deal. Mr. Musk would need the court’s permission to amend his countersuit against Twitter and the presiding judge, Kathaleen St. J. McCormick of the Delaware court, may be reluctant to do so, given that the trial is relatively soon.
Another option for Mr. Musk would be to bring a federal securities fraud lawsuit against Twitter,arguing that he has the right to walk away from the deal under laws governing the sale of securities. Mr. Musk could argue that Mr. Zatko’s concerns should have been disclosed in Twitter’s latest annual report, a point Mr. Musk’s attorney, Alex Spiro, alluded to in a hearing last week in Delaware.
Mr. Musk’s lawyers are requesting further information on any reports about privacy vulnerabilities that Mr. Zatko may have sent to Twitter’s chief executive, Parag Agrawal, or other top Twitter employees. Additionally, his legal team is asking for more information about the section of Twitter’s annual report that is the centerpiece of its case: the part that discusses fake accounts. Legal experts have said that Twitter amply hedges those disclosures.
“Mr. Zatko will comply with his legal obligations of that subpoena and his appearance at the deposition is involuntary,” Debra Katz, a lawyer for Mr. Zatko, said in a statement. “He did not make his whistle-blower disclosures to the appropriate governmental bodies to benefit Musk or to harm Twitter, but rather to protect the American public and Twitter shareholders.”
Companies like Enron have been found guilty of securities fraudunder Section 10(b) of the Securities Exchange Act of 1934, but the bar to successfully lodge those claims is high, because Congress passed a law in 1995 looking to reduce the number of spurious lawsuits, said Ann Lipton, a professor of corporate governance at Tulane Law School.
“These are very difficult to plea,” Ms. Lipton said. “It requires an extreme level of detail about what was fraudulent and about the defendant’s intent.”
This strategy would also risk undercutting a court that plays a central role in corporate America (and is presiding over three other cases involving Mr. Musk). “Imagine how that looks as a precedent: ‘I don’t like how the Delaware case is going so I’ll just bring a federal case and try to get rid of the merger that way,’” Ms. Lipton said. “That’s a threat to Delaware’s raison d’être.”
Kate Conger contributed reporting.