“Snap has been responding to subpoenas and requests for information made by staff from the DOJ and the SEC,” the company said Tuesday in a statement. “It is our understanding that these regulators are investigating issues related to the previously disclosed allegations asserted in the class action about our IPO disclosures. While we do not have complete visibility into these investigations, our understanding is that the DOJ is likely focused on IPO disclosures relating to competition from Instagram.”
Snap investors allege in a securities lawsuit in federal court in Los Angeles that prior to its IPO, Snap didn’t reveal how much competition from Instagram, the photo-sharing app, was hurting its growth in the second half of 2016. They also say Snap failed to disclose a sealed whistle-blower lawsuit by a former employee who claimed inaccuracies in the company’s calculation and reporting of daily active users.
“We continue to believe the class action’s claims are meritless and our IPO disclosures were accurate and complete,” Snap said in the statement. A federal judge in June denied Snap’s request to dismiss the shareholders’ allegations.
More News On Snap Inc: Snap reveals U.S. subpoenas on IPO disclosures – The U.S. Justice Department and Securities and Exchange Commission have subpoenaed Snap Inc (SNAP.N) for information about its March 2017 initial public offering, the social media app maker told Reuters on Tuesday.
The previously unreported federal inquiries follow an ongoing shareholder lawsuit in which investors allege that Snap misled the public about how competition from Facebook Inc’s (FB.O) Instagram service had affected the company’s growth. Snap said it believes that the federal regulators “are investigating issues related to the previously disclosed allegations asserted in the class action about our IPO disclosures.” —— “While we do not have complete visibility into these investigations, our understanding is that the DOJ is likely focused on IPO disclosures relating to competition from Instagram,” the company said.
Snap’s Snapchat messaging app has posted disappointing user growth since the company’s $3.4 billion IPO, and despite above-expectations sales growth and narrowing losses, its shares have tumbled. They closed at $6.71 on Tuesday, down from their initial offering price of $17. The company described the lawsuit as “meritless” and said its pre-IPO disclosures were “accurate and complete.” It said it would continue to cooperate with the SEC and Justice Department.
Subpoenas can compel parties to provide materials that authorities want to review. Snap acknowledged the probes after the U.S. government made a sealed filing in the shareholder lawsuit last Wednesday. The complaint, filed in May 2017 in U.S. District Court in Los Angeles, also alleges that Snap did not disclose a sealed lawsuit brought before the IPO in which a former employee alleged the company had misrepresented some user metrics.
A federal court ordered that whistleblower case to arbitration in April. The shareholder lawsuit further alleges that Snap misrepresented its use of smartphone notifications and other “growth hacking” tactics to spur Snapchat usage. Judge Stephen V. Wilson in June denied Snap’s motion to dismiss the lawsuit. Plaintiffs later filed to certify it as a class action.