Twitter Inc (NYSE: TWTR) agreed to pay $809.5 million to settle a consolidated class-action lawsuit filed by shareholders alleging that it committed securities fraud. The social media company settled on the eve of a jury trial.
KBC Asset Management NV and the National Elevator Industry Pension Fund were the lead plaintiffs in the securities fraud class-action lawsuit against Twitter. The initial complaint was filed against the social media company and its directors and officers in September 2016.
In the lawsuit, shareholders alleged that Twitter committed securities fraud by concealing the fact that its user growth was dormant and its user engagement was declining. Its nondisclosure of these material key metrics resulted in TWTR shares trading at artificially inflated levels. TWTR’s stock price plummeted by 20% when the truth about its user growth and user engagement came out.
The settlement with Twitter is “record-breaking”
KBC Asset Management and the National Elevator Industry Pension Fund sued Twitter to recover their losses and the losses of other shareholders who acquired TWTR shares from February 6 to July 28, 2015.
Robbins Geller Rudman & Dowd LLP, the law firm representing the National Elevator Industry Pension Fund in the case, described the settlement amount as “record-breaking.”
In a statement, Daniel Drosman, the lead counsel for Robbins Geller said, “The bottom line is whether you have a track record of trying complex securities fraud trials or not – that’s what enabled us to maximize the recovery for our clients and the class here.”
On the other hand, Tor Gronborg, a partner at Robbins Geller who serves as a lead attorney on the trial team, commented, “The jury trial is a great equalizer, even for some of the most powerful entities on the planet. It levels the playing field and sets the stage for accountability.”
In its Form 8-K filing with the SEC, Twitter revealed that it entered into a binding agreement to settle the consolidated securities fraud class-action lawsuit.
According to the social media company, the $809.5 million settlement amount will resolve its alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
“The binding agreement does not, and the final settlement agreement will not, include or constitute an admission, concession, or finding of any fault, liability, or wrongdoing by the Company or any defendant. There can be no assurance that the final settlement agreement will be executed or that such agreement will be approved by the court,” explained Twitter in its regulatory filing.
Additionally, the social media company disclosed that it will use its cash on hand to pay the settlement amount, which is expected in the fourth quarter of 2021. It also expects to record a charge for the settlement in the third quarter of 2021.
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