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SEC charges App Annie and its founder with securities fraud

129 points by jakarta 5y ago

ajsharp 5y ago
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).
elliekelly 5y ago
> 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.
ajsharp 5y ago
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.
- outworlder 5y ago
  Yeah. At those levels, it's essentially a tax.
  - spaetzleesser 5y ago
    It seems that’s pretty much by design these days. Most fines are not high enough to be a real deterrent.
- JumpCrisscross 5y ago
  > 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.
  - ajsharp 5y ago
    I assume DOJ can't prosecute when SEC comes to a settlement agreement?
    - JumpCrisscross 5y ago
      > 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.
    - vmception 5y ago
      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.
      - ajsharp 5y ago
        So if that's the case, what is the incentive to settle for the company? Or can the SEC just arbitrarily levy fees?
        deleted 5y ago
        [deleted]
        tych0 5y ago
        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.
Closi 5y ago
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.
- anm89 5y ago
  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
  - Closi 5y ago
    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.
usmannk 5y ago
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?
- tcldr 5y ago
  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.
  - etskinner 5y ago
    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".
lifeisstillgood 5y ago
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
- detaro 5y ago
  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.
  - wyager 5y ago
    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.
    - Closi 5y ago
      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
vmception 5y ago
> 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.
gh123man 5y ago
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.
- m_ke 5y ago
  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.
- someguydave 5y ago
  I actually clicked the button - app annie quoted mid 5 digits per year
soheil 5y ago
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.
1vuio0pswjnm7 5y ago
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&ns0=1&search=app+annie https://en.wikipedia.org/w/index.php?limit=500&profile=all&n... https://en.wikipedia.org/w/index.php?search=App+Annie&title=Special%3ASearch&profile=advanced&fulltext=1&ns0=1&ns1=1&ns2=1&ns3=1&ns4=1&ns5=1&ns6=1&ns7=1&ns8=1&ns9=1&ns10=1&ns11=1&ns12=1&ns13=1&ns14=1&ns15=1&ns100=1&ns101=1&ns118=1&ns119=1&ns710=1&ns711=1&ns828=1&ns829=1&ns2300=1&ns2301=1&ns2302=1&ns2303=1 https://en.wikipedia.org/w/index.php?search=App+Annie&title=...
marginalien 5y ago
On a more general level, how can you even get close to reality if you want to estimate app downloads or in-app-revenues? Isn’t this complete guesswork with very very little reliability/validity?

129 points by jakarta 5y ago

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).

elliekelly 5y ago

> 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.

ajsharp 5y ago

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.

outworlder 5y ago
Yeah. At those levels, it's essentially a tax.
- spaetzleesser 5y ago
  It seems that’s pretty much by design these days. Most fines are not high enough to be a real deterrent.
JumpCrisscross 5y ago
> 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.
- ajsharp 5y ago
  I assume DOJ can't prosecute when SEC comes to a settlement agreement?
  - JumpCrisscross 5y ago
    > 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.
  - vmception 5y ago
    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.
    - ajsharp 5y ago
      So if that's the case, what is the incentive to settle for the company? Or can the SEC just arbitrarily levy fees?
      - deleted 5y ago
        [deleted]
      - tych0 5y ago
        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.

Closi 5y ago

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.

anm89 5y ago
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
- Closi 5y ago
  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.

usmannk 5y ago

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?

tcldr 5y ago
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.
- etskinner 5y ago
  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".

lifeisstillgood 5y ago

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

detaro 5y ago
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.
- wyager 5y ago
  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.
  - Closi 5y ago
    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

vmception 5y ago

> 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.

gh123man 5y ago

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.

m_ke 5y ago
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.
someguydave 5y ago
I actually clicked the button - app annie quoted mid 5 digits per year

soheil 5y ago

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.

1vuio0pswjnm7 5y ago

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&ns0=1&search=app+annie https://en.wikipedia.org/w/index.php?limit=500&profile=all&n... https://en.wikipedia.org/w/index.php?search=App+Annie&title=Special%3ASearch&profile=advanced&fulltext=1&ns0=1&ns1=1&ns2=1&ns3=1&ns4=1&ns5=1&ns6=1&ns7=1&ns8=1&ns9=1&ns10=1&ns11=1&ns12=1&ns13=1&ns14=1&ns15=1&ns100=1&ns101=1&ns118=1&ns119=1&ns710=1&ns711=1&ns828=1&ns829=1&ns2300=1&ns2301=1&ns2302=1&ns2303=1 https://en.wikipedia.org/w/index.php?search=App+Annie&title=...

marginalien 5y ago

On a more general level, how can you even get close to reality if you want to estimate app downloads or in-app-revenues? Isn’t this complete guesswork with very very little reliability/validity?