The initial public offering (IPO) of social media giant Snap is to be probed by the US Department of Justice and the Securities and Exchange Commission (SEC), following on ongoing lawsuit against the firm.
Snap confirmed it had responded to requests for information from the two US authorities in a statement this morning, after the US government made a sealed filing in the shareholder lawsuit last week.
Investors have alleged that Snap failed to clarify the impact of Instagram's success on its Snapchat app's growth, a factor which has since plagued its stock. Since the $3.4bn (£2.6bn) IPO in March last year, Snap's share price has fallen from $24.48 per share on its first day of trading to yesterday's close of $6.17.
Snap said that while it doesn't have full visibility into the investigation, it believes the Department of Justice and the SEC are focused on IPO disclosures related to the lawsuit, which it described as "meritless".
Though Snap's investor prospectus had warned Instagram's Stories feature "may be directly competitive" to Snapchat, shareholders believe the firm underplayed that risk and should have attributed slowed user growth to the rival app as a result.
The firm added that it would continue to cooperate with US authorities, and that all of its disclosures before going public were "accurate and complete".
The lawsuit also alleged Snap did not disclose a separate sealed lawsuit before the IPO, in which a former employee claimed the company had misrepresented some user metrics, including smartphone notifications and other "growth hacking" tactics.
Snap's user numbers peaked in the first quarter of this year at 191m, and have since fallen to 186m in the third quarter. Finance chief Tim Stone said in an earnings call in October that user numbers will continue to fall again next quarter, despite Wall Street analysts previously predicting a rise above the peak to 193m.
The loss-making firm topped expectations for revenue at $297.7m in the three months to September, boosted by increased take-up of its advertising sales programme.
Its share price has fallen over four per cent in pre-market trading on the news.
Snap also suffered from an exodus of its top executives over the last few months, including most recently the departure of its vice president for content Nick Bell. There now remains only one member of the firm's original IPO leadership team left at the company, excluding its two co-founders.