The US Government is investigating whether Snap Inc. manipulated its $3.4 billion initial public offering.
Snapchat’s parent company revealed Wednesday that the US Department of Justice and the Securities and Exchange Commission have subpoenaed the company about potentially misleading claims it made in its March 2017 filing.
Investigators want to know if Snap, a photo messaging app, downplayed the impact competitors like Instagram would have on its growth.
The subpoenas stem from a class action lawsuit filed in a federal court in Los Angeles in May 2017.
The suit accuses snap of making “materially false and misleading statements” about the health of company’s business.
The lawsuit also says that Snap failed to disclose that it fired the person in charge of growth after just three weeks on the job. The employee had reportedly questioned Snap’s approach to metrics.
Snap (SNAP) said in a statement that it was responding to subpoenas and requests for information about the IPO disclosures.
“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,” the statement said. “We continue to believe the class action’s claims are meritless and our IPO disclosures were accurate and complete. We intend to continue to cooperate with these regulators on their subpoenas and requests for information.”
The investigation is the latest in a series of setbacks for Snap, which include shedding users, a panned redesign that annoyed celebrity influencers and an exodus of executives.
But the biggest problem for Snap is Instagram, which has continued its explosive growth while Snap has shrunk.
The Facebook-owned app cloned many of Snap’s key features, including stories, funky face filters and disappearing photo messaging. Eight months after Instagram’s debut in 2016, the number of people using Instagram Stories surpassed Snapchat’s daily active user count.
News of the recent turmoil at Snap pummeled the stock, sending it nearly 3% lower in early trading.
The stock is down 55% for the year.