The Justice Department and the Securities and Exchange Commission have subpoenaed Snap, the company behind Snapchat, for information about its initial public offering, according to the company.
Snap said that it believes government regulators are investigating issues related to a class-action lawsuit in which shareholders alleged that the company misled investors by downplaying the negative effects Facebook-owned Instagram had on its business. “While we do not have complete visibility into these investigations, our understanding is that the DOJ is likely focused on IPO disclosures relating to competition from Instagram,” the company said in a statement to The Washington Post Wednesday.
Reuters first reported on the subpoenas.
“When the SEC looks into something often it follows up with litigation, which can affect the stock price,” said John Coffee Jr., a professor at Columbia Law School who focuses on securities law. Generally, subpoenas can imply that regulators did not receive all the information they wanted from initial cooperation with a company, he said.
Snap began trading on the stock market in March 2017. According to the company’s S-1 filing, Snap said it competes “with other companies in every aspect of our business” and noted that Instagram’s stories feature “largely mimics our Stories feature and may be directly competitive.” Snap told The Post that it believes the claims in the class-action lawsuit are “meritless” and that “our IPO disclosures were accurate and complete.” Snap also said it has responded to the subpoenas and requests for information from the SEC and Justice Department and would continue to cooperate with the federal agencies.
The Justice Department declined to comment. The SEC did not immediately respond to requests for comment.
Shareholders in the lawsuit allege, in part, that Snap concealed crucial information in the run-up to its IPO, failing to reveal how competition from Instagram was eating away at its user growth at the end of 2016, according to Bloomberg. The investors also alleged that Snap misrepresented its reliance on practices that boost daily user-counts, known as “growth hacking,” according to the report.
Multiple attorneys representing the investors did not immediately respond to requests for comment.
During afternoon trading, Snap was down nearly 3 percent, at $6.51, well below its IPO price of $17.