Musk Can Use Twitter Whistle-Blower Claims In Buyout Fight

Musk can bring parts of a Twitter whistle-blower's complaint into his defense against the company.

Musk Can Use Twitter Whistle-Blower Claims In Buyout Fight

Elon Musk can add a Twitter Inc. whistle-blower’s allegations about spam and bots on the social media platform to his legal arsenal as the company fights to make him complete his $44 billion buyout, a judge ruled.

Delaware Chancery Judge Kathaleen St. J. McCormick on Wednesday allowed the billionaire to add former Twitter security chief Peiter Zatko’s accusations of “egregious deficiencies” in Twitter’s operations to his case for walking away from the $54.20-per-share deal. 

But she rebuffed his bid to push back the Oct. 17 trial date, and Twitter’s shares jumped on the news. They were up 5.4% at $40.74 at 12:42 p.m. in New York.

McCormick, who put the case on a fast track in July, also said Musk’s legal team would be permitted only an “incremental” pursuit of information related to Zatko’s claims.

Harm to Twitter

“I am convinced that even four weeks’ delay would risk further harm to Twitter too great to justify,” she wrote.

The brisk schedule bodes well for Twitter, Bloomberg Intelligence analyst Matthew Schettenhelm wrote in a note on the rulings.

“Zatko’s allegations still require Musk to prove either an exceptional material adverse effect” on the acquisition “or that he relied on an intentional Twitter lie,” Schettenhelm wrote. “That remains difficult.”

Read More: Musk-Twitter M&A Ruling Signals Whistle-Blower Not Game-Changer

Musk backed away from his planned purchase of Twitter earlier this year, claiming the company hadn’t leveled with him about the number of spam and bot accounts among its more than 230 million users. Twitter says the concerns are a pretext to get out of a deal over which the world’s richest person began to experience buyer’s remorse.

Musk’s legal team hailed McCormick’s permission to amend its counterclaims to argue a material adverse effect on the acquisition, through Twitter’s failure to disclose Zatko’s allegations that the company had lax computer security and brushed off his warnings. 

“We are hopeful that winning the motion to amend takes us one step closer to the truth coming out in the courtroom,” said Alex Spiro, Musk’s lead lawyer. 

Agreed Price and Terms

A Twitter spokesperson said in a statement that “we look forward to presenting our case in court beginning on October 17th and intend to close the transaction on the price and terms agreed upon with Mr. Musk.” 

In Tuesday’s hearing, Twitter’s lawyers for the first time specifically disputed Zatko’s assertions that he raised questions about the quality and security of Twitter’s user base while at the company. They said addressing the bots issue wasn’t part of his “portfolio.” 

Read More: Twitter Whistle-Blower Raised No Spam Concerns, Company Says 

Bill Savitt, Twitter’s lead lawyer, told McCormick on Tuesday that Zatko, whom the company says it fired over his performance, has a “huge ax to grind with Twitter.” In her ruling, the judge said she wasn’t commenting on the legitimacy of Zatko’s claims at this stage.

“I am reticent to say more concerning the merits of the counterclaims at this posture before they have been fully litigated,” McCormick wrote. “The world will have to wait for the post-trial decision.”

The case is Twitter v. Musk, 22-0613, Delaware Chancery Court (Wilmington).

(Updates with details, context and comment starting in second paragraph. An earlier version of this story incorrectly stated that the judge will let only parts of the whistle-blower complaint into the case.)

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