Exclusive: Snap reveals U.S. subpoenas on IPO disclosures

NEW YORK (Reuters) – 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.

A man takes a photograph of the front of the New York Stock Exchange (NYSE) with a Snap Inc. logo hung on the front of it shortly before the company’s IPO in New York, U.S., March 2, 2017. REUTERS/Lucas Jackson

Snap said in a statement it has responded to the government subpoenas and other requests for information.

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.

Snapchat, which reported 158 million daily users prior to the IPO, peaked at 191 million in this year’s first quarter and fell to 186 million in the third quarter.

Snap’s investor prospectus warned that Instagram’s new ephemeral-posting feature, Stories, copied one of Snapchat’s core elements and “may be directly competitive.”

Investors allege that Snap underplayed the risk, contending that the company should have attributed slowing user growth in late 2016 to Instagram.

Reporting by Alison Frankel in New York; Additional reporting by Paresh Dave in San Francisco; Editing by Cynthia Ostermanand Leslie Adler

Related Posts:

  • No Related Posts

Amazon CEO Jeff Bezos Ranks Highest In This Important Category, Poll Finds

Amazon CEO Jeff Bezos is the most skilled leader among top tech CEOs, according to a new poll.

Eighty-three percent of respondents said they had confidence in his abilities to grow his company and innovate, beating Apple CEO Tim Cook (77%), Microsoft CEO Satya Nadella (76%), Google CEO Sundar Pichai (76%), and Facebook CEO Mark Zuckerberg (71%), according to a survey conducted on Fortune’s behalf by The Harris Poll.

Bezos has earned his top position by transforming Amazon from a tiny online bookseller into an e-commerce Goliath. At the same time, he pushed the company beyond its roots into streaming video, information technology, Kindle tablets, and, more recently, Echo smart speakers while also expanding into physical retail, most notably by acquiring grocery chain Whole Foods.

“Amazon is sort of it’s own thing right now,” Harris Poll CEO John Gerzema said. “It’s like what Apple was 10 years ago.”

But the current landscape is complicated for tech CEOs. Once seen largely as helping make life easier for their users, many of them are now under suspicion amid problems like privacy missteps and the growing sentiment that people spend too much time staring at screens.

In an effort to gauge public sentiment about major tech CEOs, Fortune enlisted Harris Poll to conduct an online survey on its behalf in mid-October of over 2,000 U.S. adults. The group represents the population at large.

The poll found that public confidence in Cook, Nadella, and Pichai was almost neck-and-neck, just below Bezos.

In the past, Apple, and by implication, its CEO, usually ranked much higher than its rivals. But in the latest poll, Gerzema noticed a decline in confidence, which he attributed to a shortage of innovation at Apple compared to during the era of former CEO Steve Jobs, who unveiled the original iPhone and iPad.

Get Data Sheet, Fortune’s technology newsletter.

While Apple has continued to grow its revenue, indicating financial health, and has created fast-growing services businesses like Apple Music, the lack of new revolutionary products could be partly why the public gave Cook a lower confidence score than Bezos.

Microsoft’s reputation, on the other hand, has climbed in recent years under Nadella, who is praised as a “competent and visionary CEO,” Gerzema said. Under Nadella, Microsoft shares have reached record highs due in part to Wall Street’s enthusiasm about the company’s shift from older businesses like the Windows operating system to newer and faster growing cloud computing and related cloud software businesses.

The public is probably less familiar with Google CEO Sundar Pichai, because he keeps a lower profile and is outranked by Larry Page, CEO of Google’s parent company, Alphabet. But most Americans seem to think that Google will continue growing under Pichai’s watch, and likely attribute the company’s success to an executive they likely don’t know, Gerzema said.

That said, the Harris Poll survey was conducted before thousands of Google employees participated in a high-profile walkout to protest how the company’s executive team handled several sexual harassment complaints by workers. Google eventually revised some of its sexual misconduct policies, including ending rules that required mandatory arbitration of sexual harassment and assault claims.

It’s unclear if the recent Google walkout would have impacted the survey results.

Facebook CEO Mark Zuckerberg finished last in the survey following a number of data privacy scandals. The company came under fire in April when news reports emerged that a researcher improperly sold Facebook user data to the Cambridge Analytica political consulting firm, and the social networking giant recently suffered a major hack that may have affected up to 30 million people.

A noteworthy addendum for Facebook, however, was that people 18-34 were more confident in Zuckerberg’s abilities (79%) than older adults, 35-44 (72%), 45-54 (67%), and 55-64 (63%). Some possible explanations are that younger people are more familiar with Facebook’s less problem-plagued Instagram photo app, they identify more with the CEO’s relative youth, or that may be unaware of recent negative news about the company.

The poll on CEO leadership skills was part of a larger survey on the public’s perception of tech giants and issues pertaining to data privacy and ethics. The results from the other survey questions found that Facebook is viewed as the least trustworthy of the tech giants when it comes to safeguarding data, and that people are beginning to scrutinize tech companies and their data policies more than they have been.

For instance, while Bezos ranked the highest among the CEOs regarding the public’s perception of data ethics, his approval was at 77% and not the high 80s or even 90s that the executive typically receives in other Harris Poll surveys, Gerzema noted. This could imply that the survey respondents are becoming increasingly concerned with Amazon’s growth into newer areas like the Alexa voice-activated digital assistant, which like other digital assistants, improves over time with more user data.

As for the big takeaways from the overall survey, Gerzema predicted that there will be increased public scrutiny of big tech companies as they expand into new business lines.

Get Data Sheet, Fortune’s technology newsletter.

“Silicon Valley might look at these companies as tech brands, but the American public looks at them as lifestyle brands,” Gerzema said. “They are a part of their lives.”

Related Posts:

  • No Related Posts