The United States Securities and Exchange Commission (SEC) has charged App Annie, a leading mobile data and analytics company, along with its co-founder and former CEO and Chairman Bertrand Schmitt, with securities fraud. App Annie and Schmitt have agreed to pay more than $ 10 million to settle fraud charges related to “deceptive practices and material misrepresentation about how App Annie’s alternative data was derived,” said the DRY.
App Annie is one of the largest sellers of mobile app performance data, providing useful details for developers, publishers, advertisers and marketers such as how many downloads an app has, how often it is used, the revenue it generates and other competitive analyzes. and ideas. This is what trading companies call “alternative data” because it is not detailed in their financial statements or other traditional data sources, the SEC explains. App Annie has told app makers that it will not directly disclose their data to third parties, but instead will use the data in an aggregated and anonymized way to provide information about the apps. Specifically, companies were told that the data would be used to create a statistical model to generate estimates of application performance.
However, according to the SEC, from late 2014 to mid-2018, App Annie used unaggregated, non-anonymized data to modify its model-generated estimates to make it more valuable for sale to commercial companies. He also states that the company and Schmitt then twisted with their customers how they were able to generate the data, claiming that they did so with the proper consent of the customers, and that they had effective internal controls in place to prevent the misuse of confidential data, ensuring that it was in compliance with federal securities laws. Trading companies were making investment decisions based on this data, and App Annie had even shared ideas on how they could use the estimates to trade ahead of earnings announcements.
In the full complaint, the SEC further explains that Schmitt had accepted an internal policy that certain “Connect Data” state-owned companies – “Connect” being the analytics product of App Annies – would be excluded from its statistical model in the end. from 2014. But he didn’t. In fact, no one at App Annie asked to document this policy until April 2017. And then, when it was documented, it was only indicated to exclude data on the revenue of the applications of public companies of which application revenue exceeded 5% of total company revenue. It never said to exclude app downloads or usage data.
The SEC says the documented policy was never properly enforced. It wasn’t until App Annie learned of the SEC’s investigation in June 2018 that she changed the policy to exclude public company Connect Data from its estimate generation process and began to fully implement implement the policy.
The investigation also found that App Annie engineers in Beijing, China had been tasked by Schmitt to manually change the estimates that would be of most interest to the company’s highest-paid clients. He did this by examining Connect’s confidential data, which is one of the ways his estimates may have been more accurate than his rivals. Later, in 2016, he implemented a more automated way to adjust his model-generated estimates to match actual (and confidential) revenue and download counts. When App Chief Scientist Annie refused to implement the method, believing that adjustments should only be made to the statistical model itself, Schmitt asked engineers in Beijing to make the changes without notifying them. other managers, subscribers, users or employees of the company.
“Federal securities laws prohibit deceptive conduct and material misrepresentation in connection with the purchase or sale of securities,” said Gurbir S. Grewal, director of the enforcement division of the SEC , in a press release. “Here, App Annie and Schmitt lied to companies about how their confidential data was used, and then not only sold the manipulated estimates to their business customers, but also encouraged them to negotiate on those estimates, often touting their narrow correlation with the actual performance and share prices of companies, ”Grewal added.
The SEC claims that App Annie and Schmitt violated the anti-fraud provisions of Section 10 (b) of the Exchange Act and Rule 10b-5. App Annie, without admitting or denying the findings, has consented to a cease and desist order and is paying a penalty. App Annie agreed to pay a fine of $ 10 million. Meanwhile, Schmitt is ordered to pay a fine of $ 300,000 and is prohibited from serving as an officer or director of a public company for three years.
Asked for comment, current App Annie CEO made a statement:
“Since taking office as CEO, we have set a new standard of trust and transparency for the newly created alternative data market. App Annie is uniquely positioned to be the first to deliver a unified view of data AI, ”said Theodore Krantz, CEO of App Annie. “Many companies may unknowingly mine data based on confidential public company information without explicit consent, which we believe puts companies using digital / mobile market data at significant risk. We believe that the entire alternative data space needs to be regulated. “
In a newsroom article, the company also pointed out that the SEC’s investigation did not concern its “current products” or “our current relationships with customers.” And he says that in the three years since the breached practices, he appointed a new CEO and a new management team, changed the way he built his data estimates and established a “culture of compliance” at the company-wide, which included the appointment of a Head of Global Compliance. It also documented its procedures to ensure that confidential data is excluded from its process of generating market estimates.
App Annie’s mobile market data solution was one of the first to serve the growing application ecosystem when it launched in 2010. Today, her company has more than 1,100 corporate customers and over a million registered users, according to its company website. In early summer, the company reportedly considered a possible sale, IPO or other options.
Details of the complaint and settlement are below.