SEC Settles with Alternative Data Provider for $10 Million
On September 14, 2021, the Securities and Exchange Commission (“SEC”) announced that analytics firm, App Annie Inc., and its co-founder and former CEO and Chairman Bertrand Schmitt, agreed to pay approximately $10 million to settle securities fraud charges for engaging in deceptive practices and making material misrepresentations about “alternative data” sold by the company. Notably, this is the SEC’s first enforcement action charging an alternative data provider with securities fraud.
Alternative data is data used to evaluate the market or an investment that does not come from traditional data sources, such as company financial statements or SEC filings. App Annie is one of the largest sellers of market data on mobile app performance, including estimates on the number of times a particular company’s app is downloaded, how often it’s used, and the amount of revenue the app generates for the company.
The SEC found that App Annie assured companies that their data would be aggregated and anonymized before being used by a statistical model to generate estimates of app performance. However, despite such assurances, the SEC found that App Annie used non-aggregated and non-anonymized data from 2014 into 2018 to make the estimates more valuable to sell to trading firms. The SEC also found that App Annie misrepresented that its estimates were generated in a manner that was consistent with consents obtained from the companies that shared their confidential data with App Annie, and misrepresented that it had effective internal controls to prevent the misuse of confidential data.
Erin E. Schneider, Director of the SEC’s San Francisco Regional Office, stated that “App Annie sought to distinguish itself in the alternative data space by providing securities market participants with valuable information in a new and innovative way. It went to great lengths to assure its customers that the financial and app-related data it sold was the product of a sophisticated statistical model and that it had controls to ensure compliance with the federal securities laws. These representations were materially false and misleading.”
Without admitting or denying the findings, App Annie and Schmitt consented to the entry of a cease-and-desist order under which App Annie is ordered to pay a penalty of $10 million, Schmitt is ordered to pay a penalty of $300,000, and Schmitt is prohibited from serving as an officer or director of a public company for three years.