A judge has granted Elon Musk permission to use evidence revealed by a Twitter whistleblower in his legal case against the social media company.
Twitter is currently fighting against the Tesla CEO in court after Musk changed his mind about his offer to purchase the company for $44 billion.
Musk made the decision to cancel the offer while claiming that the true number of fake accounts on the social media platform could actually be as many as 33% of users, rather than the company’s reported 5%, with a lower number of monetizable daily active users — all of which potentially justify the assertion that the company is worth much less than the $44 billion that he had originally offered.
Backing out of the deal without a good enough reason to do so would cost Musk big time.
According to NPR, “Under the deal, there is a $1 billion fee if one party walks away under certain circumstances. Musk could try to accuse Twitter of misrepresenting the number of bots on the platform as a way of avoiding that fee, but legal experts say that argument is unlikely to prevail in court. In other merger disputes that have landed in the Delaware court, parties have resolved their differences by renegotiating at a lower sale price.”
The ironic point of this entire incident is that, at the start of the deal, Twitter did not want to sell to Musk. Now, the Tesla CEO does not want to buy the social media company. Although, some fans of Musk believe that he is playing a game of “4D chess” with this move, and is actually just trying to find a way to purchase the company at a lower price and also expose Twitter’s problems with fake accounts at the same time.
Regardless, a trial to determine the status of the acquisition deal is scheduled for October 17.
While the judge did not amend the date of the trial, Delaware Chancery Court Chancellor Kathaleen McCormick granted attorneys representing Musk permission to use a whistleblower account in their arguments.
The whistleblower, former Twitter executive Peiter “Mudge” Zatko, has come out accusing his former colleagues of not having the resources or motivation necessary to determine the number of bots on the platform.
Zatko’s whistleblower report, which was obtained by both CNN and The Washington Post, also asserted that leadership at the social media company had been negligent — leaving the platform open to potential hacking, foreign manipulation and spying. According to the whistleblower, one or more current Twitter employees are also employed by a foreign intelligence agency.
“All engineers had access. There was no logging of who went into the environment or what they did,” Zatko revealed. “Nobody knew where data lived or whether it was critical, and all engineers had some form of critical access to the production environment.”
Nonetheless, Twitter is continuing with its lawsuit against Musk, saying that he is obligated to complete the deal.
“Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests,” the lawsuit states. “Musk apparently believes that he … is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away.”
During court on Tuesday, William Savitt — a lawyer for Twitter — revealed that Musk had potentially breached his contract because of a text he sent to Michael Grimes, a managing director at the investment bank Morgan Stanley, on May 8.
In the text, the Tesla CEO expressed concern about the Russian invasion of Ukraine — and pointed to its potential effects on the global economy.
“Let’s slow down just a few days. Putin’s speech tomorrow is extremely important,” Musk wrote. “It won’t make sense to buy Twitter if we’re heading into World War III.”
This would potentially be a breach of contract because the Tesla CEO is required by the contract to use his best efforts to complete the deal. It could also be used as evidence against his claim that Twitter’s inaccurate tally of the number of fake accounts on its platform was the reason behind his hesitancy to go through with the deal.
Twitter reported losses of $0.08 per share in its second-quarter earnings — well below the $0.14 gain per share expected by analysts — which they blamed on Musk, saying that it was caused by “advertising industry headwinds associated with the macroenvironment as well as uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk,” the social media company said in a press release.
The social media company’s stock price has fallen from $64.98 one year ago to $41.22, which is approximately a 37% decline. Meanwhile, following the judge’s decision not to move the trial, shares rose over 6%.