(CN) — Twitter said Monday it will pay investors $809.5 million to settle a class action over deceptive information regarding the total number of its users.
The settlement arrives as both parties were preparing for trial and if approved by a federal judge, Twitter will avoid painful disclosures that are typically aired during litigation. U.S. District Judge Jon Tigar recently postponed the jury selection process that was set to begin Monday until November.
The time period covered in the class action was mostly before Jack Dorsey took over the company he helped found as its full-time CEO and former CEO Richard Costolo and former Chief Financial Officer Anthony Noto denied wrongdoing as part of the settlement. Tigar will have to approve the settlement.
Lead plaintiff Doris Shenwick said Twitter executives told analysts back in November 2014 that it expected its number of users to increase to over 550 million, and eventually grow to over a billion.
This turned out to be false, since by early 2015 user growth was flat or declining, according to Shenwick's complaint. Even today, as Twitter has recovered much of the market capitalization since the scandal in 2015, the company has about 220 million monetizable daily active users, the metric by which social media companies are measured.
Facebook, by comparison, has 2.89 billion such users.
Shenwick claims Twitter misled investors from a time period beginning in 2013 through 2015 by making its description of user growth intentionally vague while covering up the fact that in some cases, user growth was stagnant or declining quarterly.
Attorney Daniel Drosman, who argued in court hearings on behalf of the plaintiffs, said Noto, a former Goldman Sachs executive, was intentionally evasive during earnings reports in 2014 and 2015.
“He doesn't tell them about daily active users. It’s very carefully crafted, and it had the intended effect,” Drosman said during a hearing in 2017, noting the analysts went on to unwittingly praise Twitter’s phony growth.
After Costolo left the company in 2015, the company acknowledged it had been concealing bad news about user growth and the stock dropped about 20% as a result.
Twitter argued the mistakes were a feature of a young company that made mistakes as it grew.
“Twitter is a young company in a young industry working hard to be transparent in a rapidly changing environment,” Twitter attorney James Kreissman said in a previous hearing.
Twitter’s stock plunged 2.43% on Monday, but the decline was in line with broader sector declines amid Wall Street jitters over default possibilities in China.
The settlement includes investors who had shares in the company from February to July 2015.
Verdicts in securities lawsuits are exceedingly rare as most of them are either dismissed or settled.
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