SEC Charges App Annie and Its Founder with Securities Fraud

SEC Charges App Annie and Its Founder with Securities Fraud

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On September 14, 2021, the Securities and Exchange Commission (“SEC”) agreed to settle charges of securities fraud against App Annie Inc. (“App Annie”) and its founder and CEO Bertrand Schmitt, marking the first time the SEC has brought an enforcement action against an alternative data provider. App Annie and Schmitt agreed to pay $10 million in all to settle the charges.

App Annie, like other alternative data providers, provides information about companies (mainly mobile apps) that is not typically provided by the companies themselves to investment professionals. Data sets used by alternative data providers are usually larger, more complex and less structured than traditional sources of data. They also may include material, non-public information, or “insider information,” trading on or tipping of which is illegal.

As such, App Annie was able to obtain confidential, or material, non-public information from companies on the promise that they would anonymize and aggregate the data before using it in their models. The SEC found that for almost four years, from 2014-2018, App Annie in fact was not anonymizing or aggregating confidential information as they claimed, but instead using non-aggregated and non-anonymized data to alter their model-generated estimates to make them more valuable when selling to trading firms. The order further stated that App Annie had insufficient internal controls in place to prevent the misuse of confidential data and ensure compliance with federal securities laws. Specifically, App Annie “not only sold the manipulated estimates to their trading firm customers, but also encouraged them to trade on those estimates—often touting how closely they correlated with the companies’ true performance and stock prices.” App Annie and Schmitt consented to the entry of a cease-and-desist order and were ordered to pay a penalty of $10 million.

Alternative data providers are often used by hedge fund managers or other investment professionals in making investment decisions for their clients. While the investment professionals who used the App Annie data were not charged in this particular enforcement action, it is not impossible that there will be future enforcement actions against investment professionals regarding their use of alternative data. Fund managers should revisit their due diligence practices when considering an engagement with a third-party data provider, or monitoring their existing third-party data provider relationships. It may not yet be clear how far managers should go in conducting due diligence on these providers, but evaluating usage and strengthening procedures is warranted.

Please reach out to your Greyline representative with any questions about how this affects you or your firm’s policies.

Read the full SEC press release here.

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Darren Mooney

Partner and Co-Head of Business Development

Darren Mooney is a Partner and the Co-Head of Business Development at Greyline. Before joining Greyline, Darren served as deputy chief compliance officer of Partner Fund Management where he held primary responsibility for the compliance program of the second-largest hedge fund in the Bay Area. Prior to that, Darren spent five years providing compliance consulting services at Cordium and then ACA Compliance Group, where he led the company’s San Francisco office and west coast operations. In addition to providing ongoing consulting services to a variety of investment managers, including hedge fund, private equity, venture capital, real estate, quantitative and other wealth managers, Darren also regularly guided clients through the SEC registration process, implemented tailored compliance programs, supported clients’ live SEC exams, and served as an SEC-mandated independent compliance consultant following an SEC enforcement action. Darren’s other experience includes serving as deputy chief compliance officer and associate counsel at F-Squared Investments where he directly supported the compliance program during the investigation and subsequent enforcement regarding historical advertising practices. Darren has a B.S. in Economics from the University of Delaware and a J.D. from Suffolk University Law School. He is a member of the Massachusetts bar.

Annie Kong

Partner and Head of Venture Capital
Annie Kong is a Partner and Head of the Venture Capital Division at Greyline. She provides ongoing compliance consulting to investment advisers and manages client relationships. Prior to joining Greyline, Annie was part of compliance and operations at a long-only manager-of-managers that advised pension fund clients. While there, she conducted compliance and operational due diligence on SEC-registered investment advisers on the platform. She also oversaw and counseled on various legal matters across the firm. Annie has a B.A. in Economics from the University of California, San Diego, and a J.D. from the University of San Diego School of Law. She is an active member of the State Bar of California.
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