Whistleblower: Bad news for Twitter, good news for Musk?

Elon Musk might have just gotten a leg up in his effort to back out of buying Twitter.

The billionaire Tesla CEO has spent months alleging that the company he agreed to buy for $44 billion undercounted its fake and spam accounts — and that he shouldn’t have to consummate the deal as a result.

Now, a whistleblower complaint from Twitter’s former security chief alleging the company misled regulators about its privacy and security protections — and its ability to detect and root out fake accounts — might play into Musk’s hands in an upcoming trial scheduled for Oct. 17 in Delaware.

Musk’s legal team, in fact, has already issued a subpoena to the whistleblower, Peiter Zatko — also known by his hacker handle “Mudge” — who served as Twitter’s head of security until he was fired early this year.

Alex Spiro, a lawyer representing Musk in his efforts to back out of buying Twitter, said the legal team “found his exit and that of other key employees curious in light of what we have been finding.”

Disclosure of the Mudge document changes the dynamic of the Twitter lawsuit from what appeared to be an easy win for Twitter, Wedbush analyst Dan Ives said in an interview.

“For Musk, it’s almost like a kid waking up on Christmas morning and seeing this under the tree,” he said. “It gives the Musk camp a leg to stand on going into the court battle.”

The whistleblower complaint boosts Musk’s claims on the spam bot issue, and will bring more focus on it in Washington, Ives said. “For Twitter’s board, it’s their worst nightmare that this came out at such a critical juncture.”

But Ives called the timing of the complaint “extremely interesting” just weeks before the trial in Delaware.

Twitter called the complaint “a false narrative” about the company and its privacy and data security practices “that is riddled with inconsistencies and inaccuracies and lacks important context.”

In an emailed statement, the company said Zatko’s “allegations and opportunistic timing appear designed to capture attention and inflict harm on Twitter, its customers and its shareholders.”

Some experts, though, see the whistleblower disclosure as little more than good optics for Musk.

While getting a lot of headlines, it probably won’t change what’s likely to be a Twitter victory in its lawsuit demanding that Musk go through with the purchase, said Erik Gordon, a University of Michigan law and business professor.

That’s because Musk knew of and complained on Twitter about the number of fake “spam bot” accounts the company had on its platform before he signed the deal, Gordon said. To void the purchase contract, Musk has to show a “material adverse change” in the company, a change so large that it would make the deal nothing like what Musk bargained for, Gordon said. “He can’t claim that he was misled. He can claim that the whistleblower said ‘Hey Elon, you were right.’ It hurts Twitter but doesn’t help Musk much.”

Gordon, who has taught merger and acquisition law, said the Delaware Court of Chancery normally doesn’t let people out of deals if the circumstances don’t go their way. It has ordered contracts to be performed in the past. The Mudge disclosure, he said, might give the Twitter board some cover to accept a settlement short of Musk buying the company. But he expects any settlement to exceed a $1 billion breakup fee in the contract.

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