In a first-of-its kind enforcement action, the SEC fined an alternative data provider for the mobile app industry and its former CEO for misrepresentations and misuse of confidential data. Together, they will pay over $10 million, in part, for using non-aggregated and non-anonymized data to alter the company's estimates, while falsely assuring subscribers that there were regular compliance reviews and controls in place to prevent misuse of confidential data.
This action sets precedent for future enforcement activity by the SEC against alternative data providers. Notably, it also sets precedent for enforcement actions against Directors and Officers. Whereas in the past liability rested solely on the company, the SEC is becoming more and more active in its activities aimed to ensure that Directors and Officers understand and honor their obligations to the company and the public. Here, the former CEO must pay $300,000 of the total amount and is prohibited from serving as an officer or director of a public company for the next three years.
"The federal securities laws prohibit deceptive conduct and material misrepresentations in connection with the purchase or sale of securities," said Gurbir S. Grewal, Director of the SEC's Enforcement Division. "Here, App Annie and Schmitt lied to companies about how their confidential data was being used and then 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."