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SEC charges App Annie and its founder with securities fraud (sec.gov)
129 points by jakarta 10 days ago | hide | past | favorite | 39 comments





Sub headline more relevant than the headline: "Company Will Pay $10 Million to Settle First Enforcement Action Against Alternative Data Provider".

This is such an insanely good arb for App Annie it boggles the mind. Paying a $10mm vig to the SEC for a scheme that probably minted hundreds of millions in revenue from hedge funds is a no brainer.

If the SEC actually wanted to disincentivize future bad actors they'd prosecute rather than issue hilariously petty fines.


> If the SEC actually wanted to disincentivize future bad actors they'd prosecute rather than issue hilariously petty fines

The SEC can't prosecute. They can only make criminal referrals to the DoJ.


Nothing has happened here that breaks a regulation under which a civil suit can be brought?

> Nothing has happened here that breaks a regulation on which a civil suit can be brought?

That's what this announcement is. The SEC charged them. They settled. The investigation, meanwhile, provides documentary evidence for some of the wronged to pursue claims against the wrongdoers.


I assume DOJ can't prosecute when SEC comes to a settlement agreement?

> I assume DOJ can't prosecute when SEC comes to a settlement agreement?

This is incorrect. The SEC has no prosecution authority. That means it can't prosecute. It also means it can't take criminal prosecution off the table.


That's not a good assumption. Parallel enforcement routinely happens. Sometimes simultaneously, sometimes later. Sometimes both are reported in the same places, other times one is not reported at all except on DOJ's own website or in more obscure court dockets. Sometimes there is no referral. Sometimes the DOJ passes on it.

So if that's the case, what is the incentive to settle for the company? Or can the SEC just arbitrarily levy fees?

Companies/directors can (and do, see e.g. Theranos/Elizabeth Holmes) settle without admitting fault.

Presumably the goal is to lower the number of three letter agencies investigating you.


Well, at least in the case of Holmes, her legal troubles are not over. I'm not familiar with the details, but among the charges are defrauding investors. The trial just started on Sep 8th.

Several reasons.Just the lawyer fees to fight the SEC lawyers will be a lot. What they did could be worse than what the SEC found so far. Discovery process may be painful and lead to emails and documents to be published on the web. It will be a big distraction for the top brass.

Yeah. At those levels, it's essentially a tax.

It seems that’s pretty much by design these days. Most fines are not high enough to be a real deterrent.

So (getting my head round this) ... mobile app creators added an App Annie agent to their apps, which downloaded performance / usage data on their app to central servers. And App Annie promised not to sell that data to third parties unless it was "aggregated and anonymised".

(Does App Annie pay the app creators for this?)

App Annie sells this so people can work out which app to advertise on (the one with all the usage!) and which all to invest in (the one with all the usage).

But they found that no-one wanted the aggregated data, or it was nit accurate enough, so they stopped using anonymised data and used the raw data.

but said "it's ok we have permission"

Ok.

So they signed contracts on both sides, which contracts directly contradicted each other - they were always going to get caught.

But this is aggregated app usage data - Apple could publish this in a heart beat and (presumably) it would be legal and App Annie would have no market.

I know that "everything is securities fraud" and if you lie to both sides you will get caught. But this feels like a non-prosecution. The SEC had to - it was so blatent when it gets laid out, but really I doubt anyone thinks this will drain the swamp. It's all usage data.

Edit: less ! marks


It sounds to me like the contracts did not contradict.

> [App Annie] went to great lengths to assure [Trading Firms] that the financial and app-related data [App Annie] sold was the product of a sophisticated statistical model and that [App Annie] had controls to ensure compliance with the federal securities laws. These representations were materially false and misleading

It's illegal because App Annie was feeding trading firms insider information while swearing it was actually just a really good statistical model. Presumably the actual model wasn't good enough, so they started using unaggregated data to eke out perf.

What they did is not just breach of contract, but insider trading as they fed private information to trading firms.

> the order finds that from late 2014 through mid-2018, App Annie used non-aggregated and non-anonymized data to alter its model-generated estimates to make them more valuable to sell to trading firms.


Oh I see yes.

But I still read it as similar as going to a bank and saying can you supply me a list of people with over a million dollars and the bank says "we used our aggregated knowledge of our customers to create a statistical model of which of our customers has over a million. Plug your parameters in here and see what pops out"

It's a struggle to think this was ever anything but a nod and a wink.


Yeah I agree with that much

It’s the app’s financial data. Not usage data.

App developers would keenly sign up for this to get analysis and visualisation tools of the financial reports provided by Apple.

At the time App Annie came about all that Apple provided devs with was a CSV broken down into line items per country.

A bunch of companies made paid for visualisation and analysis tools/saas for this data but then app Annie had the bright idea of offering it for free and using the data to create aggregated (or not) intelligence tools.


So the app developer would download Apple data, load it up on AppAnnie and get a nice bar chart? And an assurance they would not sell the data (without anonymising it). This is who signed up when and who made a purchase etc.

Thank you


If Apple were to publish it, it wouldn't be confidential insider information. But they don't, so it is, so misusing it is a problem.

In this case, the issue would not be that the information is private, but that App Annie had a contractual fiduciary obligation to its customers which it violated.

The issue is both - if the information was non-public (which it was) then it can’t be legally traded on, and this was being sold as data to be traded on which secretly contained non-public market sensitive information.

I.e. insider trading


> both - if the information was non-public (which it was) then it can’t be legally traded on

That’s not how insider trading law works in the US. In fact, almost no country works this way, with a few exceptions like France. Insider trading laws in the US are mostly specified in terms of fiduciary obligations.

I suggest subscribing to Matt Levine’s excellent Money Stuff column. He covers this stuff constantly, including lots of court cases straddling the border of what defines insider trading.


That's the book definition of insider trading. What's your definition?

That's not the definition. Insider trading non-public information also needs to be material, and not given or received by someone in breach of duty to the company or stolen from the company.

Your definition would mean a cab driver would be insider trading if he overheard random speculation about a company that turned out to be true--that's not illegal. However, if the cab driver's passenger said, "hey, I'm an executive at at XYZ and I saw that we're acquiring FGH," that is insider trading three ways: the driver believed they were receiving confidential information, the executive breached his duty, and the executive caused stolen information to be traded. And an acquisition would of course meet the material test.


So you can deliberately disclose confidential information for the explicit purpose of helping others to ‘unknowingly’ insider trade for 4 years… and the punishment is only to pay less than a month of revenue three years later?

Wow.


total insanity.

it always makes me think, people get excited about these complicated political schemes to deal with wealth inequality, but I don't see a 10th of that level of excitement to just stop people from being handed 100 million dollar government privileges like this one in the first place


Exactly, if I sold private information to a friend for insider trading we would both be in jail.

If a company sells private information to a hedge fund for insider trading they can ‘settle’ for a fraction of the profits they made.


No idea if true, but someone once told me that Sequoia essentially owns App Annie and uses the data to win deals on companies before anyone knows they're about to pop. I'm not a lawyer, but if true, pretty brilliant from a purely competitive standpoint (not legal/moral/ethical/etc).

What I don't get is where does App Annie get its data? Implied here is that app developers hand it over, but what do they get in return? And is that the primary source of App Annie's data?

Yes, in most cases they hand it over for free in return for analysis tools for viewing their own data.(Charts, filters, etc.)

This was a pretty big benefit when all Apple offered was an unwieldy CSV broken out into line items for each country, but less so today.


So that makes me think: Given how ubiquitous Google's analytics service is, they could conceivably pull the same fast one, just substitute 'app' for 'website'. And the SEC is essentially saying "we'll probably only fine you a fraction of the money you made on this".

Not directly related but when I was releasing an iOS app recently - App Annie made me realize how "pay to win" building apps is these days. You know a service is expensive when there is only a "contact sales" button on the homepage.

It's impossible for an indie dev to afford the data they provide, and gives a massive SEO/keyword ranking edge to the larger companies that pay for the subscription.


When we were launching our app 5 years ago all of the App Store optimization experts told us the only way to get discovered was to spend a few 100K on advertising or downloads on launch day to show up on the top 100 chart.

I actually clicked the button - app annie quoted mid 5 digits per year

> The order finds that App Annie and Schmitt understood that companies would only share their confidential app performance data with App Annie if it promised not to disclose their data to third parties, and as a result App Annie and Schmitt assured companies that their data would be aggregated and anonymized before being used by a statistical model to generate estimates of app performance. Contrary to these representations, the order finds that from late 2014 through mid-2018, App Annie used non-aggregated and non-anonymized data to alter its model-generated estimates to make them more valuable to sell to trading firms.

Interesting.


Curios: Searches of Wikipedia for "app annie" return hundreds of Wikipedia pages, but there is no page for App Annie itself.

https://en.wikipedia.org/w/index.php?limit=500&profile=all&n...

https://en.wikipedia.org/w/index.php?search=App+Annie&title=...


My first thought was “there are publicly traded companies that use an app to monitor their app performance instead of relying on data directly from Apple?!”

Surely giving access to your app’s data to a random company is not without risks and is kind of irresponsible specially more so if you’re a public company having fiduciary duties to your investors.


> App Annie and Schmitt assured companies that their data would be aggregated and anonymized before being used by a statistical model to generate estimates of app performance. Contrary to these representations, the order finds that from late 2014 through mid-2018, App Annie used non-aggregated and non-anonymized data to alter its model-generated estimates to make them more valuable to sell to trading firms.

Nice to see the government making a statement about this pretty known practice. When the government doesn’t do anything people think its a tolerated practice. Its better for the government to even lose if it allows for the position of the administration to be made clear.




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