Elon Musk's lawyers subpoena Twitter whistle-blower

Another option for Mr Musk would be to bring a federal securities fraud lawsuit against Twitter. PHOTO: REUTERS

NEW YORK (NYTIMES) - Mr Elon Musk's lawyers have subpoenaed Twitter's former security chief, Mr Peiter Zatko, they disclosed in a court filing on Monday (Aug 29), signalling 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 US$44 billion (S$61.4 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 before their trial in Delaware Chancery Court in October over whether Mr Musk needs to abide by the acquisition agreement. 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 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 that Mr Musk's attorney, Mr 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 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 centrepiece 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," Ms 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 fraud under 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 corporate governance professor Ann Lipton at Tulane Law School.

"These are very difficult to plea," Prof Lipton said. "It requires an extreme level of detail about what was fraudulent and about the defendant's intent."

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