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Twitter Agrees $809.5 Million Settlement for Class Action Lawsuit

Twitter Agrees $809.5 Million Settlement for Class Action Lawsuit

Twitter Inc said Monday it will pay $809.5 million to settle a 2016 shareholder class action lawsuit in which the social media company is accused of defrauding investors.

The lawsuit was based on an allegation of metric manipulation of the microblogging app’s traffic.

The case has been amicably resolved by the agreement and the litigation will no longer proceed. Jury selection was due to begin on Monday, but at a September 17 hearing, US District Judge John Teagar in Oakland, California, postponed it until the end of November.

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Twitter, former CEO Richard Costolo and former CFO Anthony Noto have denied misconduct in agreeing to a settlement that requires Tigar’s approval.

“The jury is a great equalizer for even some of the most powerful organizations on the planet,” said Thor Gronborg, partner at Robbins Geller Rudman & Dowd, representing shareholders.

Twitter shares fell 3.8% to $ 60.11 in the afternoon. Twitter said it expects to use the cash to pay the settlement amount in the fourth quarter of this year and fix the related expenses in the third quarter.

In September 2016, shareholders filed a lawsuit against Twitter, claiming that it artificially inflated the stock price, misleading them about user interactions.

According to the complaint, Twitter stopped reporting “timeline views” at the end of 2014 and covered up stagnation or decline in user activity by reporting vague descriptions of user metrics.

Shareholders said Twitter acknowledged the truth after Costolo left the company in June 2015 and his share price fell 20%.

The class action lawsuit applies to investors who acquired shares from February 6, 2015 to July 28, 2015.

Since 1996, only nine of the more than 5,000 US securities lawsuits filed by equity investors have gone through a trial pending verdict, the Securities Intelligence Service said.

Slightly more than half of the claims were rejected, and most of the rest were satisfied. The final settlement agreement between Twitter and the aggrieved shareholders will be subject to approval by the Court.

Facebook faced a similar class action suit in 2018, brought against it by DZ Reserve and other participating plaintiffs. The lawsuit alleged that the social media giant deceived advertisers about the actual metric of its ads reach, overruling an employee’s warning to adjust it in order to avoid revenue hit.

Advertisers depend on the metric to know how many people they reach, which shapes ad buying decisions. But according to employees, the metric available to advertisers contains fake and duplicate accounts, which they said it’s deceptive.

Removing the fake or duplicated accounts would cost Facebook 10% revenue drop. So the company objected to the employee’s suggestion to eliminate the accounts to serve accurate metrics.

Twitter has taken a different route by agreeing for a settlement instead defending itself in court. In 2019, Facebook settled a similar lawsuit after admitting an error in metric calculation had caused it to inflate viewing time for video ads.

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