Twitter has agreed to pay $US809.5 million ($AU1.11 billion) to settle a lawsuit commenced in 2016 in the United States District Court for the Northern District of California that alleged Twitter and its execs misled investors about its user growth projections.
The lawsuit alleged that Twitter and its execs knowingly concealed and made false statements about Twitter’s key operating metrics during the period, in violation of the Securities Exchange Act of 1934.
Filed almost exactly five years ago, the lawsuit claimed that, in November 2014, Twitter promised investors that the size of its active monthly user base would increase to 550 million in the “intermediate” term and to over one billion in the “longer” term.
It also questioned the timing of announcements made by the social media site, as well as its active users reporting techniques. As CNET points out, Twitter stopped reporting monthly active users in April 2019, and at last count it reported 330 million.
The company now looks at daily users who see ads as its key metric.
“During the Class Period, defendants made false and misleading statements by misrepresenting Twitter’s user engagement metrics and engaged in a scheme to deceive the market,” the suit alleged.
“Defendants’ conduct artificially inflated the price of Twitter common stock and operated as a fraud or deceit on members of the Class. Later, when defendants’ prior misrepresentations were disclosed to market participants, the price of Twitter common stock plummeted, as the prior artificial inflation came out of the price.”
It stated that as a result of their purchases of Twitter stock during the Class Period, the Class members suffered economic loss (i.e. damages) under the federal securities laws.
In a statement made in April 2019, the defendants denied any wrongdoing in this lawsuit and stated they believe that the claims are without merit.
The proposed settlement resolves all claims asserted against Twitter and the other named defendants without any admission, concession or finding of any fault, liability or wrongdoing by the company or any defendant. This means Twitter is paying $US809.5 million but isn’t admitting any wrongdoing and will continue to deny participating in any improper actions relating to the case.
Twitter intends to use cash on hand to pay the settlement amount, which is expected to be paid in the fourth quarter of 2021.
The final settlement agreement will be subject to approval by the Court.