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Reports: U.S. Feds Have Subpoenaed Snap After Shareholders Sue Over Tanking IPO

By NexChange
Financial Services

Snap Inc.’s 2017 initial public offering – which once seemed like the savior that would revive the previous year’s moribund IPO market – has been an unequivocal disaster for shareholders.

After closing its first day as a publicly traded stock up 44%, things almost immediately went south for Snap’s IPO. Within two months of its listing, shares of the company’s stock began crashing and were barely hovering above its IPO price of $17 – before quickly sinking even further.

About a year ago, the Wall Street Journal took a deep dive into Snap Inc.’s business and stock price woes and found that investors had some serious misgivings about the company’s growth prospects and management style leading up to the company’s highly anticipated IPO, but decided to invest in the company anyway, lured in by the hype surrounding the biggest tech public offering in years.

The failure of the company’s IPO has now come to this: A group of shareholders have filed a lawsuit against the company – and are seeking class-action status – claiming that Snap deceived them in the run-up to ts public offering, as Bloomberg reports. Meanwhile, Reuters is reporting that the U.S. Justice Department and Securities and Exchange Commission have subpoenaed Snap in connection with the shareholder lawsuit.

Per Bloomberg:

The investors allege that prior to the 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. In addition, they said Snap misrepresented its use of “growth hacking,” the practice of sending push notifications to subscribers to drive up daily-user count.

Snap officials released a statement to Reuters confirming the government subpoenas.

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.

However, as TechCrunch reports, “there was ample press coverage of the growth of Instagram Stories, and Facebook’s general Snap cloning efforts, since its launch in August 2016.”

In particular, TechCrunch covered the rivalry and cloning closely ahead of Snap’s IPO with reports that showed Instagram was “stealing” Snap users, that it was responsible for slowing user growth and more.

In short, it was fairly clear that Instagram was cloning Snap, which in turn was a key factor for Snap’s growth struggles.

Snap’s shares closed at $6.71 on Tuesday, a huge drop from their initial offering price of $17.

Photo: Getty iStock

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