Why are regulators looking into the social media app’s IPO? We explain it
Snap’s fight in the hyper-competitive social media space is about to get even tougher. The company has been subpoenaed by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), according to a report from Reuters.
Here’s what you need to know:
- The DOJ and SEC are seeking information relating to Snap’s 2017 initial public offering (IPO).
- The inquiries stem from a current shareholder lawsuit alleging that Snap misled the public about how well it could compete with Facebook-owned Instagram.
- The shareholder suit also alleges that Snap failed to disclose a whistle-blower lawsuit filed by an ex-employee claiming that the company inaccurately calculates and reports user metrics.
- Snap says it has responded to the subpoena, and will continue to cooperate with investigators.
What’s a subpoena?
A subpoena is an order to appear in court. Subpoenas are issued by a government agency (typically a court), and compel a recipient to give testimony or provide documents on or by a certain date, and at a certain location.
In Snap’s case, the DOJ and SEC reportedly want the company to produce materials relating to its IPO for review.
The bottom line:
Snap already has its hands full trying to keep pace with Instagram. The added attention from regulators may add another obstacle in the company’s outlook.
The company’s key metrics, including daily users, have fallen lately, and Snap has also been on the receiving end of some negative PR. In recent months, celebrities like Kylie Jenner and Rihanna have criticized the platform.
In March 2017, Snap shares debuted at $17 per share, and as of November 14, 2018, are trading at between $6 and $7 per share.