The U.S. Securities and Exchange Commission (SEC) and the Delaware Court of Chancery have simultaneously intensified scrutiny on Twitter (NYSE: TWTR) over the accuracy of spam account disclosures and data access. The moves come as Elon Musk, CEO of Tesla, terminated his $44 billion acquisition agreement, citing Twitter's failure to provide reliable bot account figures. Twitter sued Musk to enforce the deal, and Musk countersued.
Court Orders Twitter to Hand Over Data from 9,000 Accounts
Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery signed an order on August 25 requiring Twitter to produce additional data to Musk. The judge noted that Musk's data requests were “absolutely broad,” as literally interpreted they would require Twitter to produce “trillions upon trillions of data points” from all 200 million monetizable daily active users (mDAU) over three years. The court narrowed the request to a historical snapshot of 9,000 accounts reviewed in connection with Twitter’s Q4 2021 audit, along with documents showing how those accounts were selected. Twitter indicated it could produce the data within two weeks.
SEC Queries Twitter's Methodology for Counting Bots
In a letter dated June 15, the SEC asked Twitter CEO Parag Agrawal to disclose the methodology used to calculate false or spam accounts, including the underlying judgments and assumptions. Twitter responded on June 22, stating it had “adequately” disclosed its method of randomly selecting thousands of accounts for human review each quarter. The SEC acknowledged the response in a July 27 letter, reminding the company that management remains responsible for the accuracy and adequacy of disclosures despite SEC staff review. The SEC’s inquiry centers on Twitter’s long-standing claim that spam accounts represent less than 5% of mDAU – a figure Musk has repeatedly challenged as being too low.
Next Steps and Market Implications
Earlier this month, Musk sold nearly 8 million Tesla shares, stating that he wanted to avoid an emergency sale of Tesla stock if the Twitter deal closes and some equity partners fail to participate. Legal observers say the court order does not resolve the fundamental dispute but may provide new evidence for settlement or further litigation. The trial between Twitter and Musk is scheduled to begin on October 17, where the judge could rule on whether Musk must complete the acquisition.