Tuesday, the Securities and Exchange Commission announced he accused App Annie — a major mobile data provider — of securities fraud, alleging that the California-based company made “material misrepresentations” to clients and investment firms about the data it was collecting and pushing. App Annie has agreed to pay $ 10 million to solve the investigation, the SEC said.
Although the Commission issued massive fines for data privacy issues before, they have largely focused on companies such as First American or Pearson deceive investors and shareholders about the cybersecurity practices of their respective companies. The case of the Annie App, according to the SEC, is a little different. Instead of the company accidentally leaking delicate details about its customer base, it says App Annie simply promised its customers that it would use their data in a way and then backtracked on that promise behind the scenes. It shows that the data broker industry can have far-reaching effects that go far beyond specific advertising.
He Order of the SEC sets out the claims in more detail. App Annie, for those who don’t know, is a company that groups app data from many people using a source group, such as ad networks and consumer boards. App Annie then sells this data as a standalone product – “Intelligence” – to customers who want to find out, for example, estimates such as overall usage, revenue, or downloads of an app. Between 2014 and 2018, according to the order, more than 100 commercial companies paid App Annie this product to help guide their investment decisions.
Understanding where intelligence went wrong, and how these companies were misled and why, is … complicated. We will do our best to break it down:
1. It’s called one of App Annie’s flagship tech products Connect, which the company offers for free to any developer who wants to easily analyze. In return, App Annie has access to fairly confidential information about the app: the total usage numbers of that app, its total revenue, its user retention, and more. This data is ultimately what fuels Annie’s App Intelligence product below.
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2. App Annie told app developers to finally, yes, their data will it will become some marketable product as part of its Terms of Service, but promised that its data would be anonymized through “aggregate information groups” before that happened.
The company also promised that it had certain controls in place to comply with federal securities laws when managing applications from publicly traded companies that would incorporate their technology. In those cases, the SEC wrote, App Annie promised companies that they could incorporate analytics without their confidential data leaking into a larger product in the line.
3. The biggest problem was that App Annie didn’t keep those promises. According to the SEC, App Annie “could not direct anyone to [the company] to document this policy until 2017, even though App Annie had been making these promises since late 2014. And even then, some public company data was still used. According to the document:
When App Annie first documented a policy restricting the use of the public enterprise Connect Data in April 2017, the policy only required that the statistical model exclude revenue data from the applications of certain public enterprises. (i.e., those with application revenue in excess of 5% of the company’s total revenue), and did not place any restrictions on the entry of application download and usage data from company applications public in the statistical model.
Until the company learned of the SEC’s investigation in June 2018, “all application download data, all application usage data, and some public company application revenue data were they used in Annie’s statistical model of App, ”the SEC wrote. And it gets worse from there.
4. Between 2015 and 2016, the SEC stated that App’s Annie team was “increasingly concerned” by complaints that its Intelligence estimates were not accurate enough for the real-world performance figures that are generated in Connect user applications. In an effort to get customers to stop competing, App Annie had two options: review the algorithms that became Intelligence or commit fraud. Since this review would be “too expensive and time consuming to implement,” the company apparently opted for option B. Annie’s app doesn’t admit to doing wrong, it only does all the things that are done when one is guilty of doing wrong ).
5. The then CEO Bertrand Schmitt told a team of Beijing-based App engineers Annie to insert an additional secret step to the end of Intelligence’s existing algorithmic workflow: “error in the half “. This step, the SEC explained, compared actual confidential information, such as app usage and revenue data, that App Annie was able to obtain from Connect users against estimates that Intelligence would spit out for subscribers. If these numbers were too far apart, this step would “halve the difference” and change that number to Intelligence.
6. Apparently, this whole process was so secret that no one in the company, who banned Schmitt and his team from going to China, even knew it existed. Representatives and executives facing clients did not know that they were selling investment firms from data that might have falsified some securities laws, and investment firms did not know that they were using these details to buy or sell shares. The only difference was that somehow, somehow, the numbers that App Annie gave about the public company’s apps were much closer to what those companies reported in the earnings calls.
7. Investors were happy (and profitable), which it meant App Annie was happy (and profitable), at least until the SEC came on the scene. As soon as the company found out about the Commission’s investigation, writes the SEC, App Annie ended it all: it removed the data of public companies from their statistical models, stopped combining these models with secretly added data and got a new CEO later Schmitt mysteriously decided to resign.
This brings us to the current day and the current charges, which can be best summed up with this statement from Gurbir Grewal, supervisor of the SEC’s enforcement division:
Federal securities laws prohibit misleading conduct and material misrepresentation related to the purchase or sale of securities. Here, App Annie and Schmitt lied to companies about how their confidential data was used, and then not only sold the manipulated estimates to their business customers, but also encouraged them to negotiate with those estimates, all often announcing its close correlation with companies real performance and stock prices.
Yeah Al that sounds pretty crap to me, Looks like BT aint for me either.
App Annie, meanwhile, did not admit the agency’s findings, but neither did she deny them. In addition to the company’s $ 10 million fine, Schmitt will have to pay his own $ 300,000 fine and will also be barred from serving as an officer or director of any public company for the next three years.
Following the SEC announcement, both App Annie and Schmitt released their own statements. Annie’s app note notes that the research “was not related to our current products nor was it related to our current relationships with customers.” Meanwhile, Schmitt left the App board of Annie and left him out a publication to his Linkedin followers letting them know he felt Extremely Sorry ™:
We were advancing rapidly and innovating in a new space, but we always understood that compliance was a critical element of the business to ensure that customers could trust the estimates we provided them. We had obtained legal advice on compliance procedures and had even hired an internal compliance team, but as a private company we did not understand our level of controls over the use of confidential data in our estimates for reporting reports. intelligence could form the basis of an SEC Action. In fact, I believe the SEC’s claims represent a significant expansion of existing legislation.
Aside from the Annie App, there are approximately 400 other companies in the so-called “alternative data” space: a term used by commercial companies to describe the non-financial information used to make business decisions. This ranges from organizations like App Annie that offer app statistics, to companies that sell everything from people received by email a literal satellite images. In a bit of advice for his fellow founders who wanted to get started in brokering such data, Schmitt noted cryptically that “if investors are users of your data, you can expect regulators to have a very clear view. wide range of how securities laws can be enforced. “
According to the SEC, this settlement is the first time the agency has charged one of these alternative data providers for securities fraud. Given the way these companies are they tend to operate when handling it cap private data of the app, it is worth assuming that it will not be the last.