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Snap Stock Slips on Disclosure of Regulatory Probe Into IPO

UPDATED, 4:05 p.m. ET: Shares of Snap, parent company of Snapchat, fell 3.4% in regular trading Wednesday after the company said the Justice Department and the SEC are investigating whether it misled investors leading up to its initial public offering last year.

On Tuesday, Snap said it had been subpoenaed by the U.S. regulatory agencies in inquiries related to a federal class-action lawsuit alleging the company failed to disclose the extent to which Facebook’s Instagram app had impacted growth of the Snapchat user base and that it didn’t reveal info in a whistleblower claim filed in January 2017 by a former employee who alleged Snap had falsified user-growth metrics.

“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,” the company said in a statement. “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.”

Snap reiterated its position that the class-action lawsuit is without merit and that “our IPO disclosures were accurate and complete.”

Since Snap’s March 2017 IPO, the stock price has fallen around 76%. The stock closed Wednesday at $6.48 per share, down from its peak of $27.09 on March 3, 2017, after NBCUniversal said it had invested $500 million in the company.

Investors have grown bearish on Snap amid slowing user growth and concerns that it will need more capital going into 2019. For the third quarter of 2018, Snap lost 2 million daily active users compared with the previous quarter, down 1% sequentially, to stand at an average of 186 million for the period.

Snap also has seen a shakeup in its executive ranks, including the recent departures of VP of content Nick Bellchief strategy officer Imran Khan, and VP of marketing Steve LaBella.

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