Whistle-blower claims could shake up Elon Musk v Twitter trial

Twitter sued Mr Elon Musk in July to force him to complete his proposed acquisition. PHOTO: AFP

WILMINGTON, Delaware (BLOOMBERG) - A whistle-blower's complaint alleging Twitter ignored a rash of spam and bot accounts could help Mr Elon Musk in his effort to walk away from a US$44 billion (S$61.3 billion) buyout of the social media platform, legal experts say.

Mr Peiter Zatko, Twitter's former head of security, alerted the US authorities to "egregious deficiencies" in the company's defences against hackers, according to his complaint.

Mr Zatko, fired from Twitter earlier this year, said he raised concerns about the bots in early 2021 and was told by the head of site integrity that Twitter did not know how many bots were on the platform. His Twitter colleagues showed no interest in delving into the issue, according to the complaint.

"We have already issued a subpoena for Mr Zatko, and we found his exit and that of other key employees curious in the light of what we have been finding," Mr Alex Spiro, a lawyer for Mr Musk, said in a statement on Tuesday (Aug 23).

Twitter sued Mr Musk in July to force him to complete his proposed acquisition. Since then, dozens of people, banks, funds and other firms have been subpoenaed in the Delaware lawsuit, with a trial scheduled to begin on Oct 17. At the centre of Mr Musk's defence is the company's disclosures about the quality of its customer base as it is affected by spam and automated accounts.

'Smoking gun'

Mr Zatko claims Twitter executives failed to disclose the true extent of such accounts on the platform. Mr Spiro said he learnt from court filings that Twitter officials did not consider Mr Zatko to be knowledgeable about spam accounts on the system and that they declined to search Mr Zatko's files as part of the exchange of information in the case.

If Mr Zatko's assertions are true, "that's just the kind of smoking gun Musk had to be pinning his hopes on", said University of Pennsylvania law professor Larry Hamermesh, who specialises in merger-and-acquisition disputes.

In the complaint, Mr Zatko said Twitter's "Integrity Team" was reluctant to dig deeply into how many bot accounts were included in the platform's customer base. That left the former security executive thinking "the company had no appetite to properly measure the prevalence of bots, in part because if the true number became public, it could harm the company's value and image".

Twitter said Mr Zatko was fired for cause.

"Mr Zatko was fired from his senior executive role at Twitter in January 2022 for ineffective leadership and poor performance," the company said in a statement.

'Opportunistic timing'

Twitter said Mr Zatko's allegations and "opportunistic timing" seemed "designed to capture attention and inflict harm on Twitter, its customers and its shareholders". It added that it "fully stands by its prior statements about the percentage of bot and spam accounts on the service".

It is hard to tell whether Mr Zatko's claims significantly affect the Twitter-Musk case, said University of Pennsylvania professor Jill Fisch, who tracks Delaware corporate law cases.

"Whistle-blower complaints can raise serious issues or just be a bunch of sour grapes," she said. "We just don't know at this point how credible" the complaint is, she added.

Mr Musk has argued that Twitter's regulatory disclosures putting spam and bot accounts at no more than 5 per cent of its customer base were misleading. The Tesla chief executive officer has made public some of his analysis of the issue, which holds that a full third of Twitter's more than 230 million users may fall into the bot category.

'Game over'

Retired University of Delaware professor Charles Elson, who ran the school's Weinberg Centre for Corporate Governance, said the complaint, if accurate, would be a bombshell.

"The bottom line question here is whether Twitter was entirely candid with Musk about these bots," he said. "If it turns out they were not, it could be game over."

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