Elon Musk has formally written to Twitter to terminate the $44 billion merger agreement, documents from the SEC have revealed, citing ‘certain facts’ he claims he was not aware of when he first announced his intention to withdraw on July 8.
Musk’s legal team presented the Schedule 13D document yesterday, confirming to the government agency that the serial entrepreneur, referred to in the document as a ‘reporting person’, has notified Twitter of his official decision to terminate the merger.
On August 29, 2022, the Reporting Person’s advisors sent a letter (the “August 29 Termination Letter”) to Twitter (on behalf of the Reporting Person) to formally notify Twitter that the Reporting Person had terminated their Merger Agreement (the “Merger Agreement”), “Read Document.
An accompanying letter to Twitter’s chief legal officer from Musk’s team informed the social media giant that “certain facts not disclosed to Musk’s parties (on July 8) have come to light that provide additional and distinct grounds for terminating the merger agreement”.
It comes after lawyers for the CEO of Tesla and SpaceX summoned a former Twitter security chief who claimed the company’s executives knew about the site’s security laxity and gave the public false statements.
Peter Zatko, who goes by the name Mudge in the hacking community, filed a complaint against the whistleblower last month alleging the social media giant was unavailable to the public and moaned about its security practices.
Twitter has been accused of years of “misrepresentation and material omission” about protecting security and privacy, claiming that company executives “lied” about the number of spam accounts or bots.
The company has vehemently denied the allegations, but Musk’s legal team is now asking Zatko to appear for testimony on September 9 in the billionaire’s ongoing legal battle to undo his $44 billion takeover of Twitter.
The lawyers also requested more information about any reports of privacy weaknesses that Zatko might have sent to Twitter CEO Parag Agrawal or other senior employees and are asking the company to provide more information about the section of Twitter’s annual report that discusses fake accounts.
The move comes as Musk prepares to face Twitter executives in federal court in October.
He argued for weeks that company executives misled him about the number of fake accounts on the platform — on which he relied when he approved the takeover.
Elon Musk’s lawyers have summoned former Twitter security chief Peiter Zatko to appear in court in the billionaire’s ongoing legal battle to get rid of his $44 billion agreement to buy the company. Zatko filed an indictment complaint with whistleblowers last month alleging that the social media giant lied to the public and Musk about its security practices.
For Musk’s lawyers to use Zatko’s arguments, he must either amend his counterclaim or file a complaint with the Securities and Exchange Commission.
Musk’s legal team presented the Schedule 13D document yesterday, confirming to the government agency that the serial entrepreneur, referred to in the document as a ‘reporting person’, notified Twitter of his official decision to withdraw from the agreement.
Zatko, the former head of security at Twitter, filed the whistleblower complaint with the Securities and Exchange Commission, the Federal Trade Commission and the Department of Justice in July after preparing it for months.
It contained a section titled ‘Lie about bots to Elon Musk,’ Business Insider reports, accusing Twitter executives of misrepresenting their strength in measuring and combating bots and spam accounts.
It specifically targeted a tweet Agrawal posted in May which said Twitter was heavily motivated to detect and remove as much spam as possible.
The complaint stated that “Agrawal’s tweet was a lie,” and added, “Agrawal knows very well that Twitter executives are not incentivized to ‘accurate detection’ or report on total spam bots on the platform.”
Zatko continued by explaining that while employees are encouraged not to count spam accounts as ‘active monetized users’ – a metric that Twitter provides to advertisers – they have little incentive to disclose spam accounts among the large number of accounts that do not. mDAU accounts are considered.
Zatko wrote that by 2021, Twitter’s head of site safety had asked about the number of spam accounts and was told “we don’t really know.”
Zatko claims in the whistleblower complaint that “willful ignorance was the norm among the executive leadership team.”
He added that Twitter deployed “simple, outdated, uncensored scripts as well as overworked, incompetent, understaffed, and reactive human teams” to expose bot accounts.
Zatko specifically referred to a tweet Agrawal posted in May that said Twitter was heavily motivated to detect and remove as much spam as possible, saying it was a “lie”.
But if Musk wants to use any of those allegations in his bid to break out of his takeover of the social media giant, he’ll either have to amend his lawsuit against Twitter or file a complaint with the Securities and Exchange Commission — which he also chairs. More than three cases against the CEO of Tesla.
In order to amend the counterclaim against Twitter, though, the New York Times reported that Musk would need the permission of a Delaware court — and Presidential Judge Kathleen St.
That would leave Musk’s lawyers with the option of filing a federal securities fraud lawsuit against Twitter, arguing that he has the right to walk away from the deal under the laws governing the sale of securities.
They could argue that Zatko’s concerns should have been revealed in Twitter’s latest annual report, a point that Musk’s attorney Alex Spiro hinted at at a hearing last week.
But this could also become a bit ambiguous as the regulator is already investigating the Tesla CEO after he delayed reporting his takeover on Twitter, thus failing to provide enough warning that a takeover offer was looming.
He has also had skirmishes with the Securities and Exchange Commission in the past, with the regulatory agency asking to monitor all of Musk’s tweets after accusing him of inflating stock prices.
Recently, a US judge criticized him for trying to escape a settlement with the Securities and Exchange Commission that required oversight of his tweets on Tesla.
Musk is set to face Twitter executives in a federal trial in Delaware Chancery Court (pictured) in October.
However, Musk has had some success in his efforts to break out of his Twitter bargain.
Last week, Judge Kathleen McCormick ruled that Twitter executives must hand more data to the Tesla CEO about its fake accounts.
Twitter was ordered to hand over data on 9,000 accounts the company audited at the end of 2021, opening the door for that information to be used in Musk’s efforts to close the $44 billion deal.
“It appears that some additional data from the plaintiff (Twitter) is justified,” McCormick wrote in her four-page ruling.
Wednesday’s letter revealed that the Securities and Exchange Commission asked the company in June about its methodology for calculating miscalculations or spam and “basic judgments and assumptions used by management.”
Law firm Wilson Soncini of Palo Alto, California, responded to the Securities and Exchange Commission in a letter dated June 22, saying that the firm believes it adequately disclosed the methodology in its 2021 annual report.
The message says that Twitter makes its estimates for the faulty accounts through an internal review of a sample of the accounts.
Accounts are chosen randomly, and employees use a complex set of rules that “define spam and platform manipulation.”
The letter said an account is considered a liar if it violates one or more of the rules. She added that many trained employees are investigating fake accounts.
The letter said the number of fake accounts “represents the average of fake or spam accounts in the samples during each monthly analysis period within a quarter.”
It added that less than 5 percent of Twitter’s daily active users who could monetize were fake accounts in the last quarter of last year, a period the SEC questioned.
Company executives now say it did 238 million monthly active users, removes 1 million spam accounts daily.
The SEC is interested in both numbers, as Twitter uses them to attract advertisers, whose payments make up just over 90 percent of the company’s revenue.
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