The legal battle between Elon Musk and Twitter over the fate of their $44 billion acquisition deal took a new turn Wednesday, September 7, 2022, as a Delaware judge ruled that Musk can introduce new evidence from a whistleblower. However, the judge denied Musk’s request to postpone the high-stakes trial set for October. This new development injects further uncertainty into the already complex legal saga surrounding the social media giant.
Elon Musk at the opening of Tesla’s Berlin factory in March 2022. The image captures Musk in a formal setting, reflecting the serious nature of his ongoing legal battle with Twitter.
Chancellor Kathaleen St. Jude McCormick, presiding over the Delaware Court of Chancery, delivered the ruling after a lengthy hearing. While she permitted Musk to include evidence linked to whistleblower allegations by former Twitter security chief Peiter Zatko, she refused to grant the four-week delay requested by the Tesla CEO.
This decision marks a significant development in the ongoing legal dispute. The case centers on Musk’s attempt to back out of his agreement to acquire Twitter, a move that prompted the social media company to sue him. The trial, slated to begin the week of October 17, will determine whether Musk is legally obligated to complete the acquisition.
Zatko’s Whistleblower Testimony and Its Potential Impact on the Trial
The whistleblower at the heart of this new development, Peiter “Mudge” Zatko, is scheduled to testify before Congress next week. His allegations paint a concerning picture of Twitter’s cybersecurity practices. Musk’s legal team argues that Zatko’s claims could strengthen their argument that Twitter misled both Musk and the public about the prevalence of fake and spam accounts on the platform, a key justification Musk has used for attempting to terminate the deal.
Zatko, a renowned cybersecurity expert, alleges he was fired in January after raising concerns about Twitter’s alleged negligence in protecting user security and privacy. These allegations, if proven, could significantly impact the outcome of the trial. They potentially provide Musk with a stronger legal basis to argue that Twitter misrepresented the true state of its user base, a claim central to his justification for withdrawing from the acquisition agreement.
Twitter’s Arguments and the Judge’s Response
Twitter’s lawyers have attempted to minimize the relevance of Zatko’s allegations to the merger dispute. They contend that Zatko’s initial 27-page complaint to Twitter and a subsequent retaliation claim made no mention of the “spam bot” issues central to Musk’s argument. They emphasized that Zatko “never said a word about spam or bots” until his July whistleblower complaint.
Twitter has consistently maintained that Musk’s reasons for withdrawing from the deal are merely a pretext for buyer’s remorse. They argue that Musk’s change of heart came after he agreed to pay a 38% premium over Twitter’s stock price, just before a market downturn that significantly impacted Tesla’s stock value, where the bulk of Musk’s personal wealth resides. The judge, however, acknowledged that the newly public whistleblower complaint offered sufficient grounds for Musk’s team to amend their countersuit, though she declined to delve into specifics at this stage.
Judge McCormick’s Decision and Its Implications
In her ruling, Judge McCormick emphasized her reluctance to comment extensively on the merits of the counterclaims before they have been fully litigated, stating that “the world will have to wait for the post-trial decision.” However, she sided with Twitter’s concerns that postponing the trial would further jeopardize the company’s operations. She wrote, “I am convinced that even four weeks’ delay would risk further harm to Twitter too great to justify.”
This decision underscores the court’s desire to expedite the proceedings and minimize further disruption to Twitter’s business. The refusal to delay the trial suggests a recognition of the potential negative impact of prolonged uncertainty on the company’s operations and value. Following the judge’s ruling, Twitter shares saw a notable increase, adding 5.5% to reach $40.77 in afternoon trading. This market response suggests investor confidence in a swift resolution to the legal battle.
Conclusion: The Trial Looms Large
The upcoming trial promises to be a closely watched event with significant implications for both Twitter and Elon Musk. The inclusion of Zatko’s whistleblower evidence adds a new layer of complexity to the case, potentially strengthening Musk’s argument for terminating the deal. While the judge’s decision to allow this evidence gives Musk’s team a tactical advantage, the denial of the delay request ensures that the trial will proceed as scheduled in October.
The outcome of this trial will have far-reaching consequences for the future of Twitter. It will determine whether Musk is compelled to complete the acquisition, or if he can successfully extricate himself from the deal, potentially leaving Twitter to grapple with the fallout and continued uncertainty about its future ownership. The legal battle continues, and the final verdict will undoubtedly reshape the landscape of the social media industry.
