Musk can use $7.8 million Twitter whistleblower payout in his counterclaims: US Court

A tweet promoted about the Chinese city of Suzhou is displayed on a mobile phone near a Twitter logo, in this illustrative photo taken September 8, 2022. REUTERS/Florence Lo

Delaware: Elon Musk can use $7.8 million severance package to Twitter Inc. whistleblower to claim he was justified in walking away from his $44 billion takeover of the company, the latest twist in a deadly battle to be judged next month.

Delaware Chancery Judge Kathaleen St. J. McCormick ruled Thursday that the billionaire can amend his counterclaims in Twitter’s lawsuit against him with payment to Peiter Zatko. Musk claims Twitter failed to obtain his consent for the severance deal, violating the terms of the buyout. Twitter sued Musk in July to force him into the $54.20 per share deal.

The decision is a boost for Musk in a closely watched case that has seen a torrent of subpoenas, including Musk’s co-founder of Twitter, Jack Dorsey, who has been a forceful boost to the takeover. The trial is scheduled for five days starting October 17.

Zatko, Twitter’s former chief security officer, made headlines when he alleged that he had raised questions about the number of spam accounts and bots embedded in Twitter’s customer base, but that he had been ignored by management. He testified this month before the Senate Judiciary Committee that the breaches were so serious that they threatened national security.

Twitter said it fired Zatko in January for poor performance and cited “a false narrative about Twitter and our privacy and data security practices that is riddled with inconsistencies and inaccuracies and lacks important context.”

Twitter representatives did not immediately return an email seeking comment on Thursday’s decision. The company did not object to Musk’s request to amend its arguments with Zatko’s payment.

In his brief ruling, McCormick said Delaware laws permit “liberal amendment in the interest of resolving cases on the merits.”

Musk backed out of his plan to buy Twitter earlier this year, saying the company hadn’t told him about the number of bot accounts among its more than 230 million users. Twitter counters that the concerns are an excuse to back out of a deal the world’s richest person has begun to feel buyer’s remorse over.

Earlier this month, McCormick allowed Musk to add Zatko’s claims about lax IT security, privacy issues and bots to his takeover cancellation filing. But she pushed back on his bid to postpone the trial so he would have more time to pursue the whistleblower’s allegations.

Those allegations were addressed in a Senate Judiciary Subcommittee hearing on Tuesday. During the hearing, Federal Trade Commission Chair Lina Khan said she was struck by Zatko’s allegation that Twitter misled regulators about its compliance with a 2011 agreement to strengthen security controls and respect user privacy.

“There’s absolutely been a problem with companies treating FTC orders as suggestions,” Khan said. “We have an ongoing program to really strengthen that.” She described Twitter’s 2011 agreement with the FTC as “a more legacy approach” that her team is moving away from in favor of “clear line” rules setting specific limits for corporate behavior.

Khan’s congressional testimony could actually make it harder for Musk to use Zatko’s allegations about the FTC’s breach of the deal as a legitimate reason to torpedo the deal, Bloomberg analyst Matthew Schettenhelm wrote. Intelligence. His comments may make it harder for the judge “to say that a future FTC sanction is likely to cause a material adverse effect,” a material change in circumstances that affects an agreement, he said.

Musk is trying to show that what he calls Twitter’s failure to be transparent about the number of bot and spam accounts in its customer base – as well as Zatko’s myriad allegations – is enough to create an EAW under of Delaware law that supports his abandonment of the agreement. .

About Matthew R. Dailey

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