• General
  • September 20, 2021
  • 5 minutes read

Markets: Twitter To Pay $810M To Settle Investor Lawsuit

Twitter, the social media giant, will pay a huge sum to settle a class-action lawsuit brought against it by some…

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Twitter, the social media giant, will pay a huge sum to settle a class-action lawsuit brought against it by some shareholders, filings show. The company has agreed to pay the sum of $810mn to settle a lawsuit filed in 2016 by investors alleging it provided misleading information on its growth prospects;

  • The settlement was disclosed in a recent SEC filing. Twitter says it’ll use its cash on hand to pay it, drawing from the $4.1bn of cash it reported having by June end. The settlement is expected to be paid in this year’s fourth quarter.

The lawsuit Twitter has agreed to settle was a class-action lawsuit filed by a group of shareholders with allegations that the social media giant provided false information about its growth prospects;

  • The original suit was filed by a shareholder named Doris Shenwick who picked fault with Twitter stating at a 2014 meeting with analysts that its number of monthly active users (MAUs) was expected to increase to over 550 million in the “intermediate” term and over a billion in the “longer” term. However, such expectations never materialized with Twitter averaging 330 million monthly active users in 2019, the year it stopped publishing the metric.
  • Starting with Shenwick, more shareholders joined the suit and strengthened it, with one American pension fund and one Belgian asset manager taking the lead as plaintiffs.
  • The analyst meeting that spurred the lawsuit was in 2014, just a year after the company went public. At that time, it apparently had excessive ambitions and promised bigger-than-life growth prospects (just like many startups now) but as the ambitions never materialized in its case, it constituted grounds for a lawsuit alleging the company misled investors. 
Though Twitter has agreed to cough up $810mn to settle the class-action suit, the company won’t legally admit any wrongdoing or improper actions. It’s the type of recurring situation we see wherein companies may pay big fines but still not admit to any wrongdoing on their part.
  • With the result of this suit being a major cash settlement, it seems that companies especially those in the tech industry should take care when making excessive projections as it can surely come back to bite them as shown in this case. 
  • Truly, high-growth startups (like Twitter was back in 2014) are known for making ambitious projections that in many cases don’t materialize but it appears that all it takes is a motivated group of shareholders willing to drag a case for years and there could be significant monetary penalties for such actions.
Twitter’s settlement agreement will be finalized with expected court approval.

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