App Annie and its co-founder Bertrand Schmitt agreed to settle the fraud charges against them by the Securities and Exchange Commission (SEC).
According to the SEC, App Annie agreed to pay a civil penalty of $10 million and Mr. Schmitt agreed to pay $300,000 to resolve the matter. They did not admit or deny the allegations against them by the federal securities regulator.
App Annie is one of the largest alternative data providers for the mobile app industry. The company provides estimates regarding the performance of apps on mobile devices such as how often a customer uses an app and how much revenue an app generates.
Allegations against App Annie and Mr. Schmitt
In the SEC Order, the Commission alleged that App Annie and Mr. Schmitt violated the anti-fraud provisions of the federal securities laws between late 2014 and mid-2018.
The respondents allegedly made material misrepresentations regarding how App Annie obtains its alternative data.
Additionally, the SEC alleged that App Annie and its co-founder engaged in other deceptive practices to persuade trading firms to become and remain subscribers of its alternative data to make decisions whether to buy or sell securities.
In its investigation, the SEC found that App Annie and Mr. Schmitt offered for free its analytics product called “Connect” to companies operating apps.
In exchange, Connect users provided their app store credentials to App Annie to gather their confidential app performance metrics. The respondents told Connect users that they will only use their apps’ performance metrics in aggregated and anonymized form to generate estimates.
The SEC also found that App Annie and Mr. Schmitt sell app performance estimates through a separate subscription product called “Intelligence.” More than 100 trading firms became subscribers of Intelligence to obtain app performance estimates, which serves as one of their bases in making investment decisions.
The company and its co-founder allegedly told Intelligence subscribers that they obtained the app performance estimates through a statistical model that used aggregated and anonymized Connect Data. They also allegedly told Intelligence subscribers that Connect users allowed them to use their confidential data that way.
However, App Annie used confidential Connect data in its non-aggregated and non-anonymized form to change Intelligence estimates closer to Connect users’ actual app performance metrics.
Furthermore, the SEC found that the respondents told its subscribers that it had internal controls and processes to prevent misuse of confidential Connect data and to ensure that App Annie is in compliance with federal securities laws. However, during the relevant period, App Annie didn’t have internal controls and processes.
According to the SEC, App Annie and its co-founder made misrepresentations and engaged in other deceptive practices. They violated Section 10(b) of the Exchange Act and Rule 10b-5.
In a statement, SEC Enforcement Division Director Gurbir Grewal said, “Here, App Annie and Schmitt lied to companies about how their confidential data was being used and then not only sold the manipulated estimates to their trading firm customers but also encouraged them to trade on those estimates—often touting how closely they correlated with the companies’ true performance and stock prices.”
Grewal added, “The federal securities laws prohibit deceptive conduct and material misrepresentations in connection with the purchase or sale of securities.”
App Annie says it has new internal controls and processes
The company issued a statement stating that the SEC investigation “did not relate to our current products and services or to our current customers and partners.”
It also stated that “new internal controls and processes designed to exclude confidential public company data from its estimate generation processes” have been implemented.
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