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Update: App Annie to pay $10 million following SEC securities fraud charge

Co-founder and former CEO ordered to pay an additional $300,000
Update: App Annie to pay $10 million following SEC securities fraud charge
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Update: App Annie's current CEO Theodore Krantz, who succeeded Schmitt as CEO in May 2018, has responded to the charge:

"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."

Original Story: Mobile analytics company App Annie has been charged by the US Securities and Exchange Commission (SEC) in relation to securities fraud.

The SEC found the firm was in breach of anti-fraud provisions of the Exchange Act, which makes the issuing of misleading statements concerning the sale or purchases of security unlawful.

According to TechCrunch, App Annie has agreed to pay a $10 million penalty to settle the charge following a cease and desist order.

In addition, co-founder and former CEO and chairman Bertrand Schmitt is ordered to pay a penalty of $300,000 and is prohibited from acting as a director of office of a public company for the next three years.

App Annie collects what the SEC calls "alternative data" as it does not disclose companies’ financial statements. This data instead includes information such as downloads and revenue numbers.

The SEC’s order found that organisations only agreed to permit App Annie access to this data under the provision that it was aggregated and anonymised, and not released to third parties.

According to the SEC’s order, between 2014 and 2018 App Annie used non-aggregated and non-anonymized data to modify its estimates to make them more valuable to firms trading in the shares of companies in the app and mobile game sector.

The charge is the first the SEC has made against an alternative data provider regarding securities fraud.

"Manipulated estimates"

"The federal securities laws prohibit deceptive conduct and material misrepresentations in connection with the purchase or sale of securities," said SEC's enforcement division director Gurbir S. Grewal.

"Here, 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."

SEC San Fransisco regional director Erin E. Schneider elaborated further: "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."