Twitter’s $7 million whistleblower payout violates purchase deal, Musk’s lawyers argue

A judge recently ruled that Elon Musk can use Twitter whistleblower Peiter Zatko’s allegations as part of the arguments in his counterclaim against the company. As it turns out, Musk intends to use not only Zatko’s allegations to win his case, but also the fact that the former Twitter exec got a settlement to get out of the $44 billion acquisition deal he’s on finished with the social network. As The Washington Post Musk’s lawyers reportedly sent a letter to Twitter telling the company that the $7.75 million settlement it paid Zatko in June violated a provision in their purchase agreement.

In the letter, uploaded to the SEC’s website, Musk’s attorneys cited Section 6.1(e) of the merger agreement, which said Twitter had promised “not to make or provide any severance or termination payments or benefits to other service providers of the company other than the Payment of severance payments amounts or benefits in the ordinary course of business consistent with past practice and subject to the enforcement and non-revocation of an indemnity in favor of the Company and its affiliates.” Former employees are deemed to be service providers to the Company.

Musk and Twitter finalized the deal in April, and it wasn’t until June that Zatko received his severance package. The company did not obtain Musk’s approval or notify him of the transaction before making the payment, the attorneys said in the letter. Musk apparently only learned of the settlement after Twitter included the information in his Sept. 3 court filing. Musk’s camp therefore argues that the settlement serves as an additional basis for terminating the parties’ purchase agreement. As The post notes that it is now up to Twitter to prove that such a large payout to a former employee was nothing out of the ordinary. We’ve reached out to Twitter for an explanation and will update this post when we get feedback.

Zatko, also known as “Mudge”, accused the social network of “extreme, outrageous security flaws”. He said in a complaint filed with the Securities and Exchange Commission that Twitter violated the terms it agreed to in settling a privacy dispute with the FTC in 2011. The whistleblower also claimed that he could not get a direct response from Twitter as to the actual number of bots on the site. If you recall, Musk previously accused Twitter of fraud for hiding the actual number of bots on its platform, telling the court in a lawsuit that 10 percent — not just 5 percent as the social network claims – Its daily active users see ads are not authentic accounts.

Twitter and Musk will face each other in court in a five-day trial scheduled to begin Oct. 17.

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Russell Falcon

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