Everything indicated that Elon Musk would arrive at his trial with Twitter in October with very little chance of victory. All the excuses he had thrown around to abandon his deal to buy the platform were in vain. Analysts laughed at his contradictions and speculated about a possible resolution: OK, Elon will lose, but how much will you have to pay thus? And then a new nightmare appeared for Twitter: Peter Zatko.
The also known in the hacker world as ‘Mudge’ served as Head of Twitter Security between November 2020 and January of this year, when he was fired by the new CEO of the company, Parag Agrawal.
Despite reaching a compensation agreement for 7 million dollars for which he promised not to speak publicly about the company, the contract included one usual exception: testifying in front of the US Capitol. And that’s what he did last september 12.
The introduction of Zatko’s character is far from being the bombshell he would have wanted Elon Musk, but it is an important incentive for his legal odyssey with Twitter. At the very least, the criticism that ‘Mudge’ has leveled at the platform is a factor that adds unpredictability. But how much?
Twitter vs. Elon Musk, before Peiter Zatko
The soap opera of the trial dates back to last April, when Elon Musk reached an agreement to buy Twitter for 44,000 million dollars.
- That is, at $54.20 per share, about $12 above its current price. A posteriori, it is a clearly exorbitant figure.
- It should be noted that the price made a little more sense in April, but the US stock market has suffered strongly since then. Especially the technology sector.
Just over two months after the deal, the Tesla founder announced he was pulling out of the deal. But could he? Not quite. to remember something we have already analyzed here in the past:
- In the text of the agreement, Elon Musk had very limited options to leave it. And we still don’t know of any that can be infallible in judgment.
- One is having found a “Material Adverse Effect”. That is, unknown information before the offer, flagrant enough to have a negative and exceptional influence on the company’s value.
- Another is having lacked the collaboration of Twitter when Elon Musk has asked for internal information about the company.
Both options have revolved around the issue of bot (sometimes referred to as fake or spam accounts).
- Or because from Twitter they would not have been honest about the amount of bot that really roam your platform.
- Or because the company has not wanted to help Elon Musk figure out how Twitter calculates the number of fake and real users on his social network.
Introducing: Peiter Zatko
But the arrival of Peiter Zatko on the battlefield has changed the landscape of the trial between Elon Musk and Twitter. The now informant filed a formal complaint last July with the Capitol cameras and various US federal agencies. In it he claimed:
- That he witnessed “massive shortcomings, negligence, willful ignorance, and threats to national security and democracy.”
- That the company lacked basic security controls, including possible attacks on the integrity of the platform from the unsecured computers of thousands of employees.
- That half of the servers the company operates on have outdated software without basic security features.
- That the company does not protect the private information of its users even when they have already deleted their accounts.
- That one or more Twitter employees may be working for foreign governments and intelligence agencies.
- That Twitter’s board of directors ignored Zatko’s alarms about security loopholes in the social network.
If it sounds like wow, how crazy because so it should be. Zatko’s accusations are far from surprising. Platforms like Twitter, including Twitter itself, have been accumulating controversies over the security and handling of their users’ information for years. That foreign governments try to exert their influence within platforms with so much power in public opinion is not new either.
Of course, Zatko’s accusations still need to be scrutinized. After all, they arrive at a moment that is at least singular.
From Twitter they have been forceful: «Mr. Zatko was fired from his executive position at Twitter in January 2022 for ineffective leadership and inefficient performance. What we have seen so far is a false narrative about Twitter and our privacy and data security practices that is riddled with inconsistencies and inaccuracies and lacks important context. Mr. Zatko’s allegations and his temporary opportunism appear designed to draw attention to and harm Twitter, its customers and its shareholders.”
But what then?
The good news for Elon Musk is that the judge overseeing his Twitter case in the state of Delaware has agreed to allow Peiter Zatko’s allegations to be introduced as evidence at trial. The bad news is that it will not delay the trial as the entrepreneur had requested. That raises some interesting points.:
- On the one hand, the fact that the judge has accepted Zatko’s accusations means that Elon Musk loses the option to appeal the decision. Therefore, his lawyers only have until October 17 to build their case around those allegations.
- On the other hand, the fact that the judge has not postponed the trial could indicate that she does not have much interest in those specific facts as much as that Elon Musk is still looking for an excuse to get out of the agreement.
There is an anecdote from the preliminary trial that sheds some light in this regard. It has to do with the due dilegence, a process that the businessman renounced with his purchase agreement. Had he not done so, Elon Musk could have explored Twitter’s accounts and operations more closely before buying the company and getting into this lawsuit. The conversation goes on like this according to journalist Karissa Bell:
- One of Musk’s lawyers: “One wonders why we didn’t find out [esta queja formal de Zatko] in due diligence […] They have hidden it, that’s why.
- Judge Kathaleen McCormick: “We will never know. There was no due diligence.”
Twitter vs. Elon Musk: It’s all in the messages
Added to this situation is the fact that Elon Musk left in writing on up to three occasions that he wanted to renegotiate the purchase agreement. Something that, it should be remembered, he could not do because it was already signed. Columnist Matt Levine of Bloomberg, I summed them up like this:
- The most popular is a tweet in which he said he was putting the deal “temporarily on hold.” I repeat: something you cannot do because the purchase was already agreed.
- In a message to one of his bankers, Elon Musk asked him to hold off on the deal process until Vladimir Putin gave a speech on Ukraine. “It wouldn’t make sense to buy Twitter if we’re going to get into World War III.” But it is that he had already promised to buy Twitter two weeks before.
- And in another message last June, Elon Musk wrote to another banker about the possibility of using a banking mechanism to renegotiate the price. But it is that the price was already signed with the April agreement.
The conclusion is that it seems clear that the founder of Tesla has been ‘fishing for excuses’ wherever he could. And while Peiter Zatko’s entry into this trial odyssey between Elon Musk and Twitter may serve you well, it’s clearly just one more pretext to abandon the purchase agreement.
So what options are there?
- The judge can accept that Zatko’s allegations represent a “Material Adverse Effect” and Elon Musk can leave the agreement.
- The judge can reject them and force Elon Musk to pay 44,000 million dollars for a company that has made it very clear that it does NOT want.
- The judge can reject them but without forcing Elon Musk to buy Twitter. And either make him pay the $1 billion stipulated in the contract if the deal breaks — or make him pay much more for everything he’s unleashed since the spring.
For the conclusions, we have to wait until October.
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Twitter vs. Elon Musk, (pen) last surprise before the trial of the year