Twitter proposes $809 million settlement with angry investors

Twitter Inc announced Monday that it has proposes $809.5 million settlement in connection with a 2016 securities class action complaint alleging that the company deceived investors about its user interaction metrics. According to a press release, the lawsuit alleged violations of the Securities Act of 1934. Twitter stated that it intended to pay the settlement amount in cash in the fund in the fourth quarter.

The lawsuit alleged that Twitter misled investors regarding its growth metrics in order to make the company appear financially stronger than it actually was. The complaint cites a 2014 Twitter event hosted by financial analysts, where the company made “unrealistic” growth expectations, including doubling monthly active users (MAU) to more than 550 million users and tripling revenue to $4.6 billion by 2018.

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According to the complaint, Twitter engaged in a “mock game” in which it attempted to hide user interaction from investors, despite the fact that user interaction was widely seen as a significant driver of MAU’s growth.
[H] Announcement If the defendants had provided comprehensive and accurate information on user interaction, investors would have noticed that Twitter’s MAU growth – and thus the company’s ability to increase revenue – had similarly slowed.

According to the claim, Twitter stopped providing the main metric for user engagement – timeline views – in 2014, making it difficult for analysts and investors to assess the company’s growth. Each time a user visited Twitter and updated their timeline to view more tweets or perform a search, the number of views of the timeline was logged. At the time, Twitter stated that the statistic was outdated.

Instead, it began using what the lawsuit referred to as “low-quality growth” measures, such as automated messages to latent users encouraging them to check in so Twitter could consider them “active” users. This method is detailed in a 2016 Vanity Fair article by reporter Nick Bilton, who stated that Twitter did what many startups do when they need to “goose” the numbers: “They kind of made it.”

It also directed the notice to the Securities and Exchange Commission, which questioned Twitter in April 2015 – after the company’s annual filing of securities – whether it intended to give “alternative measures” to “explain user interaction patterns and advertising services.”

According to a Wall Street Journal report at the time, Twitter reported to the Securities and Exchange Commission (SEC) that it began disclosing how often users took action in response to an ad and how much advertisers paid for that data. The magazine reported that the Securities and Exchange Commission withdrew its inquiry in response to this response.

Twitter objects to any misconduct or other unlawful conduct under the terms of Monday’s proposed settlement. Court approval is required for the final agreement.

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