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Snapchat accused of lying about user numbers to inflate value of IPO

The Guardian // 07th January 2017

Powered by Guardian.co.ukThis article titled “Snapchat accused of lying about user numbers to inflate value of IPO” was written by Alan Yuhas in San Francisco, for theguardian.com on Thursday 5th January 2017 21.01 UTC

A former Snapchat employee has accused the tech company of lying about its user numbers to deceive investors ahead of a possible $25bn initial public offering and has filed a lawsuit alleging wrongful termination over his refusal to cooperate.

Anthony Pompliano filed a lawsuit against the social media company on Wednesday in Los Angeles. In the suit, Pompliano alleges that Snapchat misrepresented its internal numbers about users and growth, “out of the avarice of the small group of executives” who hope for a huge valuation.

“Snapchat will not let anything stand in its way of an IPO, including its obligations to represent material facts accurately,” the suit claims. “Mr Pompliano was terminated because he refused to participate in a scheme to deceive the public and artificially inflate Snapchat’s valuation in anticipation of its IPO.”

Seven full pages and several phrases about what Snapchat allegedly misrepresented are redacted in the complaint because of a confidentiality agreement between Pompliano and Snap Inc, the parent company of Snapchat.

A spokeswoman for Snap, Mary Ritti, said the company had reviewed the complaint. “It has no merit,” she said in a statement. “It is totally made up by a disgruntled former employee.”

According to the lawsuit, Snapchat executive Imran Khan and others “repeatedly” made false claims about the company’s numbers to investors, such as the Chinese retailer Alibaba. Pompliano also alleges that Khan and executives misreported at least two statistics to him when they persuaded him to leave Facebook for the burgeoning startup.

Snapchat’s CEO, Evan Spiegel, “simply did not care about user engagement metrics”, according to the complaint, until executives realized that such numbers would influence investors in the company’s IPO.

Pompliano claims that he raised concerns with three senior executives about misreported numbers, only to be disregarded. The suit alleges that executives, overseeing an “institutional pandemic of misrepresenting” facts, feared Pompliano would alert the press or investors. It also alleges that executives tried to force Pompliano to break agreements he signed with Facebook and reveal proprietary information.

Pompliano was fired in September 2015, three weeks after he began work at Snapchat. He claims the company ran a “smear campaign” against him, portraying him as “incompetent”. He is seeking damages and an injunction against the company over this claim, as well as lost wages, “harm to his professional reputation” and punitive damages based on Snapchat’s “misconduct”.

Last year, anonymous sources with Snap told Bloomberg News that Snapchat had more than 150 million daily users who upload more than 10bn videos a day. In November, Snap filed paperwork for a possible $25bn IPO, according to the Wall Street Journal, with Morgan Stanley and Goldman Sachs as lead investors.

The startup is in a heated competition against Facebook for advertising money, especially in video and messaging. The corporations have waged an arms race of app features since 2013, when Snapchat rejected an acquisitions offer from Facebook. Last September, Facebook was caught having vastly overstated statistics about videos, for more than two years, to advertisers. The company said the exaggeration was due to an error in its measuring system and apologized.

  • You can contact the writer at alan.yuhas@theguardian.com

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