Snapchat says it has 'nothing to hide' from lawsuit that claims it inflated growth metrics (SNAP)

Snap IPO

Snap Inc says is has “nothing to hide” from a lawsuit filed by a former employee who claims the company inflated key user metrics ahead of its IPO.

The former employee, Anthony Pompliano, first sued Snap in January, alleging that the company falsified its growth metrics. He claimed to have been abruptly fired in 2015 after he raised the issue with senior leadership at the company.

Snap, which makes the Snapchat app popular with teens, has so far fought to keep the majority of Pompliano’s complaint, which describes his allegations in detail, heavily redacted. Pompliano asked to make his full allegations public last week, and on Tuesday Snap obliged by unsealing his original complaint.

The now-public details of Pompliano’s tumultuous, three-week tenure at Snap include allegations that the company lied about having 100 million daily active users in 2015 and inflated other user metrics. His complaint also describes multiple interactions with Snap leadership, including a meeting in which CEO Evan Spiegel allegedly said that the app is “only for rich people.”

Here are the highlights:

  • While he was being recruited from Facebook to lead Snap’s growth team in 2015, Pompliano alleges that Snapchat executives falsely told him that the app had reached over 100 million DAUs and was seeing double-digit, month-over-month growth. He also claims that Snap printed the number on brochures to show advertisers and shared the false stat with investors.
  • After joining Snap, Pompliano claims that he uncovered a “wide-spread, systematic failure in Snapchat’s internal controls over its user data.” Instead of showing over 100 million DAUs, he says that one analytics system Snapchat used called Flurry showed 97 million DAUs, while another called Blizzard showed 95 million.
  • Pompliano also claims that Snap chief strategy officer Imran Khan asked him to violate a non-solicitation and non-compete agreement he signed with Facebook. “Mr. Khan called Mr. Pompliano into his office for a meeting on September 4, 2015, and demanded that Mr. Pompliano draw a detailed organizational chart of Facebook, name the key employees, and identify which ones were particularly talented and could be poached by Snapchat,” according to the complaint.

Evan Spiegel

  • While other executives boasted of Snapchat’s user growth, Pompliano alleges that “DAU growth was actually often flat” and sometimes ranged from 1-4% per quarter between January and September 2015. 
  • While Snap claimed to have 40% retention rate (a metric for how many new users continue to use a service), Pompliano says he found Snapchat’s actual retention rate to be “closer to 20%.”
  • Evan Spiegel and other executives allegedly boasted that 87% of users completed the app’s registration process, but the data showed the real number to be less than 40%, according to Pompliano.
  • During a September 2015 meeting with Pompliano and Snap executives, Spiegel allegedly said that it was “no big deal” that the company had inflated its DAUs. Pompliano said he proposed ideas about adding users in international markets that already heavily used other social networks, like Spain and India. “This app is only for rich people,” Spiegel allegedly responded. “I don’t want to expand into poor countries like India and Spain.”

Snap has said that Pompliano is a “disgruntled former employee” and that his claims are without merit. A spokesperson declined to comment further when reached by Business Insider on Tuesday.

Pompliano’s lawyer, John Pierce, said in a statement on Tuesday that Snap withdrew its motion to seal his complaint because the company knew “it was flat wrong on the law and would lose its motion in court.”

Snap has filed a motion to return Pompliano’s lawsuit to private arbitration, where the litigation began before he filed publicly in LA court in January. The judge has yet to rule on Snap’s request.

SEE ALSO: Snapchat paid its third cofounder $158 million in cash to disappear

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