For $44 Billion, Musk Got Twitter—and a Host of Legal Problems

Federal regulator probes over alleged securities violations and data lapses and a law firm billing dispute are among the legal headaches dogging Elon Musk ever since he bought Twitter Inc.

Bloomberg News reported Friday that the National Labor Relations Board filed a formal complaint accusing X, formerly known as Twitter, of violating federal labor law by firing an employee in retaliation for her internet posts challenging the company’s return-to-office policy.

After Musk ordered workers back to the office last November, the employee told other workers in a tweet, “Don’t resign, let him fire you,” and sent a similar message on an internal messaging channel, according to the complaint. US law prohibits punishing employees for communicating and organizing with others about their working conditions.

The labor complaint is just the latest in a series of legal and regulatory issues facing Musk and X since he bought the social media platform in October 2022 for $44 billion.

Some issues Musk inherited, while others are new. X didn’t immediately comment.

Here’s a look at some notable disputes.

Securities Disclosure

The SEC is investigating whether Musk violated securities laws in buying Twitter shares ahead of his purchase of the platform.

The regulators’ probe, which began in April 2022, involves a review of statements and disclosures Musk made about the stock transactions, the SEC said in court documents.

The agency’s Division of Corporation Finance sent Musk a letter that month questioning whether he was late in disclosing that he had bought up about 9.2% of Twitter’s shares. SEC rules require investors to file a form when they acquire more than 5% of a company.

Musk has twice sat for half-day depositions as part of the SEC’s investigation. The SEC filed a court case Oct. 5 seeking to force Musk to testify again.

The agency said it hasn’t had the chance to question Musk about thousands of new documents it has obtained in the investigation. He failed to appear for a September meeting with investigators and rebuffed their attempts to find a new date, the agency said.

Musk hasn’t formally responded to the court action.

Bloomberg News reported recently that the US Securities and Exchange Commission is also investigating whether Twitter failed to adequately disclose privacy issues to shareholders in the wake of a 2018 security breach that exposed user information.

The breach occurred before Musk bought the platform. None of the executives who were in charge of Twitter have been accused of wrongdoing, and it isn’t clear whether the investigation will result in an enforcement action.

Data Security

Months before Musk bought Twitter, the platform agreed to pay $150 million to resolve allegations it mishandled user data. Twitter was already under scrutiny by the Federal Trade Commission after agreeing in 2011 to a consent order over alleged data security lapses.

Musk’s X Corp., which owns Twitter, is now asking a court to end the FTC’s oversight and “rein in an investigation that has spiraled out of control.”

X’s request, filed in July, came after a congressional report revealed the FTC was investigating Musk’s widespread layoffs after he took over the platform. The FTC wants to depose Musk as part of the probe, according to X’s court filing.

The government responded last month, noting several “concerning incidents” involving Musk. It cited, among other things, Twitter’s former director of security engineering, Andrew Sayler, who said he had questions about “Elon’s commitment to the overall security and privacy of the organization.”

X said in a recent court filing that findings from an independent consulting firm vindicated it.

Objective “evidence rebuts the FTC’s justification for harassing X Corp.,” the company wrote.

A hearing in the case is scheduled for Nov. 16.

X v. Wachtell

X Corp. in July sued Wachtell, Lipton, Rosen & Katz, the law firm brought on to represent Twitter after Musk tried to walk back his offer to buy the social media platform. The firm continued to advise Twitter through the eventual sale.

Wachtell was paid $90 million for the work, an amount X argues amounted to unjust enrichment. In a complaint seeking restitution filed in California state court, X said “lame duck” executives at the social media platform went on a legal spending spree before Musk took control.

X alleged that departing executives handed out tens of millions of dollars in “success” or “project” fees to select law firms, including Wachtell, on top of the firm’s hourly bills.

Wachtell said in court filings it never agreed to limit the firm’s fees to hourly rates. The firm also noted the shareholder value generated from enforcing the merger agreement, recalling a Twitter director’s sentiment that “no legal team had ever generated greater value for shareholders.”

The law firm has asked that the dispute be sent to arbitration.

Securities Fraud

Twitter and former executives, including co-founder Jack Dorsey and ex-Chief Technology Officer Parag Agrawal, have been accused of securities fraud in a lawsuit brought by investors.

The proposed class action, filed in September 2022, alleged Twitter misled investors about the platform’s cybersecurity and its so-called monetizable daily users. An internal measure of robot and spam accounts, mDAU was a central part of Musk’s attempts last year to walk back his offer to buy the social media platform.

Investors argued mDAU numbers reported by Twitter included accounts that the platform had determined were fake, attributing the assertion to Musk.

A judge in the US District Court for the Central District of California said in an August ruling that “Mr. Musk’s statements are sufficient to support a claim” that it was false for Twitter to claim it didn’t include fake accounts in its mDAU metric.

Investors filed an amended complaint earlier this month, after a judge dismissed the case for other reasons. Twitter’s response is due next month.