Twitter May Be in Line for Large Settlement

Twitter will pay $809.5 million to settle a securities suit filed by the U.S. Securities and Exchange Commission, according to The Wall Street Journal on Tuesday morning. Twitter’s stock price increased 5 percent shortly after the news was released before falling back down to pre-settlement levels, reflecting that investors are still uncertain about how this will impact the company in the long run.

This is the first time a social media company has been sued by the SEC for misleading investors during their initial public offering. The commission claims Twitter and its underwriters didn’t reveal everything they should have about how many users actually use its service daily. As we reported last year, the complaint against Twitter cites internal instant messages sent after their IPO which stated that only about 24 percent of the social network’s then 200 million users were considered “active” on a monthly basis.

The SEC is alleging that the microblogging site and its underwriters should have shared this information with potential investors before Twitter went public, as it would have been significant for those deciding whether or not to purchase shares. The complaint also dismissed any notion that Twitter had told the truth about its financial situation by pointing out how they overstated how much money they made during the first quarter of 2014.

The commission is accusing Twitter and its underwriter, Morgan Stanley, of “negligent misrepresentation”, meaning they knew their statements were false but didn’t bother to double check the numbers before going public with them. This is a harder charge to prove, as it requires proof that they either knew for certain the statements were false or should have known. The SEC alleges Morgan Stanley didn’t tell Twitter about a service outage on September 2013 which affected its user base, and both companies failed to mention its slow growth in Asia.

“We are pleased to have resolved this matter,” a spokesperson for Twitter told the WSJ. The commission is still deciding on how to resolve the issue with Morgan Stanley, while both companies can continue business as usual during that process. For now, the $80 million paid by Twitter will go into an escrow account and be returned if the commission decides against Morgan Stanley.

The settlement comes just under a year after Twitter went public in November 2013, and has been the subject of much criticism since then regarding its stagnant user base growth. It’s stock price has dropped by more than 50 percent since it debuted on the New York Stock Exchange last year. The company currently has around 310 million monthly active users, which is a 30 percent increase from last year.

Source: The Wall Street Journal | Image via Twitter (Twitter logo added by AllThingsD) – Artist’s rendering of a blue bird sitting atop a yellow background with a blue border. The bird has white wings and a white belly, and it appears to be smiling. The background has several white and blue geometric shapes. Other than the bird, all other content on this image (including copyright) is licensed under CC Attribution 2.0 Generic (CC BY 2.0).