Twitter faced a lawsuit from its investors regarding its user engagement figures in 2016 and now it is ready to offer a settlement. It has proposed $809.5 million. A news release suggested that the complaint alleged violations of the Securities Exchange Act of 1934. The company aims to pay off the settlement in cash by the end of the fourth quarter of the company.
The case was made against Twitter’s misrepresentation of its finances in front of its investors. It suggested that the company was doing better than it actually was. The complaint points to a 2014 event Twitter held with financial analysts where the company provided “unrealistic” growth projections that called for its monthly active users (MAU) “to double to over 550 million users and for revenue to grow by $4.6 billion by 2018.”
“[H]ad Defendants provided investors with complete and accurate information regarding user engagement, investors would have learned that Twitter’s MAU growth— and with it, the Company’s ability to increase revenue — had also stalled.”
The company halted the sharing of its primary user engagement metric that is the timeline views. This made it hard for the investors and analysts to gauge the performance. In this metric’s place, Twitter started sending what the complaint called “low-quality growth” metrics. This also included sending automated messages to dormant users to encourage them to log in. this would help Twitter enlist them as active users.
Nick Bilton brought this practice to light in a 2016 Vanity Fair article. He stated that Twitter had done what many startups did when they needed to “goose” numbers: “they kind of faked it.”
The Securities and Exchange Commission was also notified of the practice. The Commission asked the company to “alternative metrics” to try to “explain trends in user engagement and advertising services.”
Wall Street Journal told SEC that it had started to reveal how often users took an action in response to an ad, and how much the advertisers were paid for this action. The SEC left its inquiry after this reply, the Journal reported.