Snap Inc. (SNAP) is facing an investigation by the US Department of Justice and the Securities and Exchange Commission over disclosures related to its IPO, as per a report by Reuters.
The agencies subpoenaed the company for details about its IPO, which took place last March, following a lawsuit by shareholders who claim Snap provided misleading information about its rivalry with Facebook’s (FB) subsidiary Instagram.
Snap was also accused of not disclosing another lawsuit that cropped up prior to the IPO in which an ex-employee claimed the company misreported user metrics. Snap termed the lawsuit meritless and said it was cooperating with the investigation.
Snap attained a market cap of nearly $30 billion after its stock soared over 40% shortly after its debut. However, the company’s market value has dropped drastically since then and now stands at just over $8.6 billion.
The investors behind the lawsuit have alleged that Snap downplayed its competition with Instagram, whose Stories feature, despite being a copy of Snapchat Stories, has more users than Snap. Facebook has reportedly cloned several of Snapchat’s features for its own service Instagram, and this has impacted Snap’s user growth significantly.
In its most recent quarter, Snap’s daily active users (DAU) grew 5% versus the year-ago period but fell 1% sequentially to 186 million. Snap’s DAU has dropped sequentially over the first three quarters of this year.
Losing users to Instagram is not the only problem for Snap. The company has seen a slew of top executives leave this year with the most recent one being its VP of Content Nick Bell. Others include its Chief Financial Officer, Chief Strategy Officer as well as the VPs of Product and Sales, respectively. Snap’s flawed redesign effort also took a toll on its user numbers.
Over the past one month, Snap’s shares have dropped over 8%. As of 2:00 pm ET, the stock was down 4.1%.