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Snap Divulges Federal Probe Of IPO; Stock Drops In Pre-Market Trading

Snapchat parent Snap Inc. has revealed that regulators at the Department of Justice and the Securities and Exchange Commission are investigating whether it misled investors ahead of its 2017 IPO.

The news sent the company’s battered shares, which have already fallen more than 50% in 2018 to date, down 6% in pre-market trading. Snap shares went public in March 2017, closing their first day at $24.48. They have never regained that level, entering today’s session at $6.71, within a dollar of their 52-week low of $5.77.

“It is our understanding that these regulators are investigating issues related to the previously disclosed allegations asserted in the class action about our IPO disclosures,” the company said in a statement reported by numerous media outlets. “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.”

In a federal class-action lawsuit in Los Angeles, a group of Snap investors have claimed that the company downplayed the impact of Facebook-owned Instagram. The company has called the suit’s assertions “meritless” and defended the thoroughness of its pre-IPO presentation.

While it has largely escaped the larger scrutiny of social media companies in Washington and on Madison Avenue, Snap has endured a bumpy run lately as a company. On Monday, longtime executive Nick Bell, the content chief who developed Snapchat Discover, announced he would be the latest top official to leave Snap.

After the company reported a decline in daily active users last month to 186 million as a key metric in its quarterly results, founder Evan Spiegel and CFO Tim Stone gave limited details about their plan to reverse the tide. The decline represents largely a “communications and marketing challenge,” Spiegel said.


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