Snap Inc. signage is displayed on screens outside of the Morgan Stanley building in New York. (Photographer: Michael Nagle/Bloomberg)

Snap Falls Amid DOJ and SEC Investigation of IPO Disclosures

(Bloomberg) -- Snap Inc. shares fell Wednesday after the company said the U.S. Justice Department and Securities and Exchange Commission are looking into allegations it misled investors ahead of its initial public offering last year.

“Snap has been responding to subpoenas and requests for information made by staff from the DOJ and the SEC,” the company said Tuesday in a statement. “It is our understanding that these regulators are investigating issues related to the previously disclosed allegations asserted in the class action about our IPO disclosures. While we do not have complete visibility into these investigations, our understanding is that the DOJ is likely focused on IPO disclosures relating to competition from Instagram.”

The shares fell as much as 7.3 percent in early trading in New York. They are down 54 percent this year.

Snap investors allege in a securities lawsuit in federal court in Los Angeles that prior to its IPO, Snap didn’t reveal how much competition from Instagram, the photo-sharing app owned by Facebook Inc., was hurting its growth in the second half of 2016. They also say Snap failed to disclose a sealed whistle-blower lawsuit by a former employee who claimed inaccuracies in the company’s calculation and reporting of daily active users.

“We continue to believe the class action’s claims are meritless and our IPO disclosures were accurate and complete,” Snap said in the statement.

A federal judge in June denied Snap’s request to dismiss the shareholders’ allegations.

Once a highly popular app among younger people, Snapchat has been on the decline, reporting two consecutive quarters of a drop in users and projections to lose more in the current quarter. The company has been rocked by a string of employee and executive turnover, as well as a redesign of Snapchat earlier this year that was criticized by many users and advertisers.

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