S.F. data seller settles fraud case with SEC
San Francisco mobile app performance data seller App Annie and its founder and former CEO and Chairman Bertrand Schmitt will pay $10 million to settle charges of securities fraud by the U.S. Securities and Exchange Commission, the federal agency said Tuesday.
The company makes money by selling market data on apps, including estimating the number of times a company’s app is downloaded, how frequently it gets used, and the money generated by the software, according to the SEC.
The agency said that App Annie and Schmitt assured companies their app performance data would not be given to third parties and would be aggregated and anonymized when it was used for statistical purposes. Despite that, the regulator said from the end of 2014 into 2018, “App Annie used non-aggregated and non-anonymized data to alter its modelgenerated estimates to make them more valuable to sell to trading firms.”
Trading firms often refer the kind of information App Annie provides as “alternative data” since it isn’t part of company financial statements or other sources used to evaluate a company.
A statement posted on the company’s website said, “The investigation did not relate to our current products, nor did it relate to our current relationships with customers.”
The company said it was settling the issue without admitting or denying the SEC’s findings, and pointed to changes, including appointing a new CEO and executive team along with changing how it creates its data estimates.
“Since I have taken over as CEO, we have established a new standard of trust and transparency for the newly created alternative data market,” App Annie CEO Theodore Krantz said in an emailed statement. “Many businesses may be unknowingly leveraging data reliant on confidential public company information without explicit consent which we believe puts companies using digital/mobile market data at significant risk. It is our opinion that the entire alternative data space needs to be regulated.”
“The SEC has been closely looking at the use of alternative data by private fund managers over the past three years,” said Brian Daly, an attorney with law firm Akin Gump Strauss Hauer & Feld in an emailed statement. “Part of this focus has been scrutiny, not just of managers’ policies and procedures to prevent insider trading, but of the providers and aggregators of this so-called alternative data.”
The company also told customers that it generated its app performance estimates, in a way “that was consistent with the consents it obtained from companies that shared their confidential data,” according to the SEC.
The federal regulator also said that Schmitt and the company knew that trading firm customers were basing investment decisions on their products, and “shared ideas for how the trading firms could use the estimates to trade ahead of upcoming earnings announcements.”
“Here, App Annie and Schmitt lied to companies about how their confidential data was being used,” said Gurbir S. Grewal, director of the SEC’s Enforcement Division in a statement.
He added that the company “then not only sold the manipulated estimates to their trading firm customers, but also encouraged them to trade on those estimates — often touting how closely they correlated with the companies’ true performance and stock prices.”