Twitter said Monday that it is proposing a $ 809.5 million settlement for a 2016 securities class action lawsuit alleging the company misled investors about its user engagement figures. The complaint alleged violations of the Securities Exchange Act of 1934, under a Press release. Twitter said it believes it will likely use the available cash to pay the settlement amount in the fourth quarter.
The lawsuit alleged that Twitter provided investors with misleading information about growth metrics to make the company appear financially healthier than it was. The complaint indicates a 2014 event on Twitter with financial analysts in which the company made “unrealistic” growth projections that demanded a doubling of its monthly active users (MAU) to over 550 million users and a growth in revenue of 4.6 billion US dollars by 2018.
The complaint alleges Twitter launched a “shell game” in which it tried to hide its user engagement from investors; as user engagement was seen as a major driver of MAU growth. “[H]ad Defendants provided investors with complete and accurate information on user engagement that investors learned that the MAU growth of Twitter – and with it the company’s ability to increase revenue – had also stalled.
According to the lawsuit, Twitter stopped reporting its key user engagement metric – timeline views – in 2014, a practice that made it difficult for analysts and investors to track the company’s growth. Timeline views were counted every time a user visited Twitter and updated their timeline to see more tweets or to do a search. Twitter said at the time that the metric had become irrelevant.
Instead, it began recording the metrics the complaint identified as “poor growth”, including sending automatic messages to dormant users to encourage them to log in so Twitter could add them as “active” users. This practice was described by reporter Nick Bilton in 2016 Vanity fair Article where he said Twitter did what many startups did when they needed “goose” numbers: “They kind of faked it.”
It also caught the attention of the Securities and Exchange Commission, which in April 2015 – after the company filed its annual securities filing – asked Twitter whether it intended to provide “alternative metrics” to try to track “trends in user engagement and advertising services.” to explain. ”
According to a report by the Wall Street Journal At the time, Twitter told the SEC that it had started disclosing the number of times users took an action in response to an ad and how much its advertisers paid for that information. The SEC has closed its investigation following this response, which diary reported.
Under the terms of Monday’s proposed settlement, Twitter denies any wrongdoing or other improper act. The final agreement requires judicial approval.