On Tuesday the Securities and Exchange Commission (SEC) announced the issuance of a cease-and-desist order against App Annie Inc., a data analytics company serving securities trading firms, and its co-founder and former CEO and Chairman Bertrand Schmitt. The SEC’s order made various findings about the respondents, chiefly that they violated the antifraud provisions of the federal securities laws by making material misrepresentations about how App Annie’s “alternative data” was derived, among other deceptive practices.
The SEC explains that App Annie “is one of the largest sellers of market data on how apps on mobile devices are performing, including data on the number of times a particular company’s app is downloaded, the amount of revenue that a company is generating through its app, and how often customers are using that company’s app.” Such information about companies or investments found outside of financial statements or other traditional data sources is frequently referred to as “alternative data,” the order says. The information is reportedly valuable to trading firms who use it to make investment decisions.
The order finds that between late 2014 and mid-2018 App Annie used companies’ non-aggregated and non-anonymized data when it promised not to and knew that companies would only share their confidential app performance data if assured that both would be aggregated and anonymized. Gurbir S. Grewal, Director of the SEC’s Enforcement Division explains that “App Annie and Schmitt lied to companies about how their confidential data was being used and 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.”
The SEC also determined that the respondents misled their clients into believing that the company’s practices were consistent with consent obtained from them, and that App Annie maintained effective controls to prevent the misuse of confidential data. In June 2018, after App Annie learned of the SEC’s investigation, it reportedly discontinued its non-aggregated and non-anonymized data practices. It also excluded all public company data from its statistical model, consistent with its representations to users. At about the same time, Schmitt resigned and the company’s board of directors replaced him as CEO.
Per the cease-and-desist order, App Annie is to pay a penalty of $10 million and Schmitt a penalty of $300,000. In addition, Schmitt may not serve as an officer or director of a public company for three years.
In a statement provided to Law Street, App Annie’s CEO, Theodore Kranz, said that ““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 is uniquely positioned to be the first to deliver on a unified data AI vision.”
“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.”