Twitter, Inc. (“Twitter” or the “Company”) has agreed to pay $809.5 million to settle a class action securities lawsuit filed by investors in the United States District Court for the Northern District of California. The lawsuit was originally filed in September 2016 and sought remedies under Sections 10 and 20(a) of the Securities Exchange Act of 1934.
The lawsuit alleged that from February 6 to July 28, 2015, Twitter and certain of its executives failed to disclose or made inaccurate public statements regarding the Company’s declining user engagement, thereby deceiving investors. The class action further alleged that once the truth was revealed, Twitter’s stock price fell by nearly 20%.
Plaintiffs’ allegations specifically concerned Twitter’s use of three internal metrics to measure the Company’s health and future growth prospects: (1) Monthly Active Users (“MAU”), which refers to the number of users on the platform in a given month; (2) MAU daily activity; and (3) advertising engagements, which refers the Company’s ability to turn user activity into advertising revenue. Plaintiffs alleged that Twitter intentionally or recklessly confused these metrics by, among other things, counting inactive or robot accounts as active users and overemphasizing MAU, despite knowing that many users had low daily activity that could not be converted to advertising engagement.
Multiple investors joined in filing suit against the Company. In May 2017, Twitter moved to dismiss the consolidated class action, arguing that it had not made any misleading statements with respect to user growth and that the Company had no legal obligation to publicly disclose specific, internal metrics.
In October 2017, U.S. District Judge Jon S. Tigar denied Twitter’s motion, sustaining the majority of Plaintiffs’ claims. The Court explained that Plaintiffs adequately alleged that nondisclosure of specific daily activity metrics was plausibly misleading because, as one confidential witness explained, “MAU says nothing about frequency” of use and therefore does not provide “sufficient detail to measure an advertising opportunity.” Likewise, the positive public statements Twitter made concerning engagement trends were contradicted by the Company’s own activity metrics. Adhering to Ninth Circuit precedent, the Court found that this contradiction created a strong inference that Twitter knowingly misled its investors.
To avoid the expenses and risks of further litigation, Plaintiffs and Twitter decided to settle the lawsuit prior to trial.
Twitter published a press release in September 2021 announcing the settlement, which can be found here. The Company expects to use cash on hand to pay the nearly $1 billion settlement, and it will account for the loss in the fourth quarter of 2021. Class members can access case-related material at the following website: Twitter Securities Litigation – Home.
The settlement is subject to the Court’s final approval. According to ISS Securities Class Action Services’ list of the top 100 securities class action settlements, the settlement would be the 18th largest securities class action settlement of all time. The case caption is In re Twitter, Inc. Securities Litigation, No. 4:16-cv-05314-JST, filed in the United States District Court for the Northern District of California.
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