Snapchat faces lawsuit alleging it falsified metrics to inflate IPO value

A former Snapchat employee has claimed he was terminated for attempting to blow the whistle on the falsification of metrics to inflate the IPO value of the social media company.

A former employee has filed a lawsuit against Snapchat company Snap Inc, alleging that he was wrongfully terminated as a result of refusing to partake in the company's false representations of metrics in an effort to inflate its initial public offering (IPO) value.

While most of former Snapchat employee Anthony Pompliano's lawsuit, filed on January 4 in the Superior Court in Los Angeles, has been redacted, it accuses Snapchat's executives of inflating Snapchat's valuation through false representations, "with the ultimate goal of taking the company public through a multi-billion dollar initial public offering".

"Snapchat will not let anything stand in its way of an IPO, including its obligations to represent material facts accurately," the lawsuit claims.

According to the lawsuit, Pompliano's "refusal to participate" in the misrepresentations caused his unlawful termination from the company, which he was led to join in the first place after "Snapchat fraudulently induced" and "aggressively recruited" him away from his job at Facebook by again misrepresenting two metrics that have been redacted from the lawsuit.

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(Image: Screenshot by Corinne Reichert/ZDNet)

Working at Snapchat for just three weeks, Pompliano was responsible for running user growth and engagement, an area of the business previously neglected by Snapchat. Pompliano claimed that when he discovered the misrepresentations and alerted vice president of Finance Drew Boller, vice president of Communications Jill Hazelbaker, and then-director of Business Operations Brian Theisen, he lost his job.

In an attempt to "not jeopardize its IPO", Snapchat then told both its employees and the industry at large that Pompliano had been fired due to incompetence, resulting in damage to his professional reputation and loss of job opportunities.

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Much of the lawsuit was redacted.

(Image: Screenshot by Corinne Reichert/ZDNet)

As a result, Pompliano is seeking a preliminary injunction order to not make any further misrepresentations as to his termination until a final award for declaratory or injunctive relief is made; all legal costs; and damages for Snapchat's "malice, oppression, and fraud" exceeding $25,000.

Snapchat changed its name to Snap Inc in September, with reports emerging in October that it was working on a $25 billion IPO after being valued at around $18 billion in August along with claims that it had more daily users than Twitter.

This was followed by reports in November that it had already filed confidentially for its IPO in an effort to begin trading publicly by March 2017.

Snapchat has been rolling out new features to compete with social media giant Facebook and photo-sharing app Instagram, including its video-recording $129 spectacles, and reports have emerged of its various acquisitions to increase its value: Snapchat in August reportedly acquired mobile search and discovery app Vurb for $110 million, and in December reportedly spent between $30 million and $40 million on acquiring Israeli artificial intelligence startup Cimagine.

Facebook acquired Instagram for $300 million and 23 million shares in April 2012, with Snapchat reportedly knocking back a $3 billion offer from Facebook in 2013.

According to a study by market intelligence firm SimilarWeb in June, the average time spent on Instagram in the United States is 19.93 minutes per day, while Snapchat users spend 18 minutes per day on it despite the brevity of the images.

Reports have also emerged that Snapchat is looking to launch in China, where rival Facebook has been banned.