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Suit Accuses Snapchat of 'Institutional Pandemic' of Misrepresentation

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By Casey C. Sullivan, Esq. on January 09, 2017 11:15 AM

Snapchat, the video messaging app that's seduced millions of Millennials, is growing fast and set to grow even faster in the future. The app grew from 50 million active daily users in March 2014 to over 100 million less than a year later, a growth that is expected to help the company bring in over a $1 billion in revenue this year -- and growth that has fueled the company's $20+ billion valuation.

But Snapchat's user metrics might not be completely accurate, at least according to one recent lawsuit. A former Snapchat employee sued the company last week, accusing it of "an institutional pandemic" of misrepresentation regarding its growth metrics. The suit comes as the company is preparing for its much-anticipated IPO.

Allegations of Sham Stats

Snapchat has been falsely representing information to investors in order to increase its valuation, according to the suit filed by Anthony Pompliano, who had previously worked on growth and engagement at Facebook. Though the publicly available copy of Pompliano's suit is heavily redacted, in it he alleges that Snapchat misrepresented its growth both to him and to investors, "in an effort to inflate Snapchat's valuation, with the ultimate goal of taking the company public through a multi-billion dollar" IPO.

Pompliano's tenure at Snapchat was short -- just three weeks. After being aggressively recruited away from Facebook, he was fired after raising concerns about the company's growth metrics, he claims. "These efforts, which should have been rewarded, wound up costing Mr. Pompliano his job," the complaint states.

After he was canned, Pompliano alleges, Snapchat "sought to destroy his career and reputation." He's suing the company for unlawfully preventing him from obtaining new employment through misrepresentations to prospective employers.

Will Allegations Complicate Snapchat's IPO?

The allegations presented in the lawsuit are "totally made up by a disgruntled former employee," a Snapchat spokesperson said. But, the suit comes at a particularly inopportune time for the company.

Snap, Snapchat's parent company, has been working towards going public, filing paperwork in November which indicated that its IPO may value the company at $25 billion or more. The IPO is one of the most anticipated social media IPOs since Facebook went public in 2012.

If Snap is successful, some expect it to release a "stampede of unicorns" going public. But Pompliano's accusations that Snapchat hasn't been honest about its performance metrics could dampen some of the Snap IPO enthusiasm.

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