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Snap's Investors Reach $187.5 Million Settlement in Securities Fraud Class Action Against Snap Inc. and Its Senior Executives

February 19, 2020

Since September 2017, Kessler Topaz has served as lead counsel in this securities class action on behalf of investors who acquired Snap Inc. common stock during the period from March 2, 2017, the date of Snap’s initial public offering, through August 10, 2017. The case alleges that Snap, the parent company of Snapchat, and certain of its senior executives misstated significant risks to investors concerning the known impact that Facebook’s Instagram was having on Snap’s user growth, measured by its daily active users or “DAU.” According to the complaint, when Facebook launched its Instagram “Stories” feature in August 2016 which was designed to mimic Snapchat’s own Stories feature—a key competitive advantage—there was an immediate impact on Snap’s user growth. In Snap’s IPO materials, the Defendants attributed the slowdown in user growth to other temporary factors, and downplayed any impact of Instagram stories in the lead up to its March 2017 IPO. Also, Snap also told its investors that it did not deploy “growth hacking” techniques to boost its DAU growth. These representations fueled the success of Snap’s $3.4 billion IPO, causing Snap’s stock price to skyrocket to $26 per share from its $17 per share IPO price, according to the complaint. But plaintiffs allege, these representations also constituted violations of Section 11 of the Securities Act of 1933, Section 10(b) of the Securities Act of 1934, and SEC Rule 10b-5. When the underlying truth—that Instagram was siphoning Snap’s DAU and causing a decline in its growth, and Snap was growth hacking to boost its DAU numbers—emerged in the first and second quarters of 2017, Snap’s stock tumbled to less than $12 per share, injuring Class members. In June 2018, Judge Stephen V. Wilson of the U.S. District Court for the Central District of California denied Defendants’ motion to dismiss. Two months later, he denied Defendants’ motion to certify an interlocutory appeal. Discovery commenced thereafter.

After highly contested class certification briefing, Judge Wilson certified the case as a class action on November 20, 2019. With fact and expert discovery concluded, millions of pages of documents exchanged, and over 24 fact and expert depositions taken, and with the parties preparing for a March 24, 2020 trial, the parties explored a mediated resolution of this matter. In late January 2020, these negotiations culminated in a proposed $187,000,000 cash settlement for Snap’s investors to resolve all pending securities claims against Defendants arising out Snap’s IPO, including a parallel state court proceeding asserting identical claims. The settlement is pending preliminary and final court approval.