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By Chris Opfer
Anthony Pompliano says Snap, the company behind Snapchat, fired him just three weeks into his job as a strategist for refusing to be involved in an “institutional pandemic of misrepresenting” information to investors in advance of an expected multibillion-dollar initial public offering.
Many details of Pompliano’s allegations aren’t yet public, as a state judge in Los Angeles decides whether to seal court records related to the case. That decision is expected in the spring ( Pompliano v. Snap Inc. , Cal. Super. Ct., No. BC645641, complaint filed 1/4/17 ).
Snapchat is a smartphone application that allows some 150 million users to share vanishing photographs. The lawsuit comes as the company is reportedly looking to secure a valuation somewhere in the neighborhood of $25 billion for the IPO.
Snap has asked the judge to dismiss Pompliano’s wrongful discharge case as barred by an arbitration agreement.
Pompliano’s attorney said he agrees that the wrongful termination claim is covered by an arbitration agreement. But the lawsuit was necessary to try to force Snap to stop saying Pompliano was let go because he was incompetent, according to David Michaels of Kilometer Partners LP in Los Angeles.
“What they’re doing is seeking to discredit him and continue to perpetuate fiction of the data to trump up their valuation,” he told Bloomberg BNA.
A Snap spokesman directed Bloomberg BNA to the company’s court filings, in which it denies Pompliano’s claims. “Make no mistake: This late-breaking-bid for a judicial, and public, forum to air his sensationalist allegations is all about publicity,” the company told the judge.
Like Twitter, which raised a little less than $2 billion in its 2013 IPO, the company’s value for investors comes from its users. That value is largely speculative, and Pompliano appears to be trying to create some leverage for his lawsuit by calling it into question.
“It already is kind of a unicorn IPO,” Rob Enderle, the principal analyst at the Enderle Group, told Bloomberg BNA. “The estimate of what it can bring in is well beyond what’s justified by its financials.”
Pompliano alleges that Snap hired him away from a position at Facebook, the original social media behemoth that scored a $104 billion valuation in a 2012 IPO, in order to mine him for confidential information about how the business operates. Enderle says Snap is more akin to Twitter in its pitch to investors in that its current value is largely speculative.
Much of the company’s revenue comes from advertisements that automatically pop up in users’ feeds. Enderle said it’s still not clear how many users actually click on the ads.
Lawyers for Snap and Pompliano will go before Judge Richard Rico in April to argue over whether an unredacted version of Pompliano’s complaint and other court documents should be made publicly available. The redacted complaint alleges generally that the company is misleading investors without identifying the false information that Pompliano says Snap is putting forward.
Late last year, the company filed for an IPO with the Securities and Exchange Commission and is reportedly seeking to raise as much as $4 billion in investments for a listing that could come within months.
Pompliano “disagrees that the data that they’re using to build this valuation is accurate,” Michaels said. “And that’s the real reason that he was fired,” the attorney said.
A drawn-out legal dispute isn’t likely to have much of an impact on Snapchat’s IPO value, because the public offering may come before a ruling in the case. That could change, Enderle said, if some particularly damning information comes to light before the public offering.
“It doesn’t take a ton to dramatically damage the IPO value because it’s all perception-based anyway,” he said.
Snap, meanwhile, noted that Pompliano is also suing smartphone app maker Brighten Labs Inc. for alleged wrongful termination. He worked for Brighten for some four months after being fired by Snap.
“As Snap will show at the appropriate time in the appropriate forum, Pompliano was a disgruntled employee who was fired for poor performance,” Snap said in a court filing. “To rationalize his firing, Pompliano ginned up preposterous allegations about Snap giving investors false user metrics back in 2015. Those accusations are sure to grab headlines, but they fail to grasp reality.”
To contact the reporter on this story: Chris Opfer in Washington at firstname.lastname@example.org
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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