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Twitter Faces Surge of Securities Suits

The company was hit with the latest in a string of lawsuits alleging that the social media company misled investors about the growth of its user base, and that senior executives raked in hundreds of millions of dollars by selling their stock before the market learned about it.

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Twitter Inc. is gaining a lot of followers it probably doesn’t want.

Last month, the company was hit with the latest in a string of lawsuits alleging that the social media company misled investors about the growth of its user base, and that senior executives raked in hundreds of millions of dollars by selling their stock before the market learned about it.

The derivative shareholder complaint brought on Nov. 8 against Twitter’s board of directors is at least the third such suit to be filed in the span of a month in the U.S. District Court for the Northern District of California over statements about how quickly Twitter’s “monthly active users” would grow.

That case, filed by Brodsky Smith in Beverly Hills, also levels insider trading claims against former Twitter CEO Richard Costolo, current CEO Jack Dorsey and company director Evan Williams. Attorneys at Johnson & Weaver make the same claim in a suit they filed a week before. A separate derivative suit filed by Robbins Arroyo does not make that allegation.

“Defendant Williams illicitly sold shares of Twitter stock for proceeds of approximately $274.5 million while in possession of material, adverse, non-public information, during a time in which Twitter stock was artificially inflated due to defendants’ false and misleading statements,” the new suit alleges.

“As a result of these illicit sales, defendant Williams received direct financial benefits not shared with Twitter shareholders,” it adds.

The complaints come on the heels of two similar securities fraud class actions filed in September by Robbins Geller Rudman & Dowd and Pomerantz. Twitter has turned to Simpson Thacher & Bartlett to defend against those suits, but has not yet named counsel in the more recently filed derivative cases.

Simpson Thacher attorney Simona Strauss did not respond to an email seeking comment.

The suits allege that Twitter puffed up its stock by projecting in late 2014 and early 2015 that its monthly active users would roughly double to over 550 million in the intermediate term. In April 2015, its stock dipped when it revealed its user base had inched up only 5 percent from the previous quarter.

So far, there’s been no move by the plaintiffs firms to coordinate their actions, and none has explicitly sought a leadership role. Attorneys for the various plaintiffs’ firms could not be reached or declined to comment.

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Ben Hancock writes for The Recorder, the San Francisco-based ALM sibling of Internet Law & Strategy. He can be reached at bhancock@alm.com. On Twitter: @benghancock

 

The views expressed in the article are those of the authors and not necessarily the views of their clients or other attorneys in their firm.

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